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Why is Evercore (EVR) Stock Down Despite Q1 Earnings Beat?

Zacks Equity Research

Evercore EVR delivered a positive earnings surprise of 4.4% in first-quarter 2019. Adjusted earnings per share of $1.66 surpassed the Zacks Consensus Estimate of $1.59. However, the figure came in significantly lower than the prior-year quarter’s earnings of $2.24 per share.

The quarterly results reflected prudent expense management and rise in assets under management (AUM). Further, liquidity position was consistently strong. However, lower revenues were a major drag resulting in investors’ concerns, causing shares of Evercore to decline 1.89%, following the earnings release.

Including certain one-time items, on a GAAP basis, net income available to common shareholders was $67.2 million or $1.52 per share compared with $95.5 million or $2.10 per share in the year-ago quarter.

Revenues Fall, Expenses Decline

Net revenues slipped 10% year over year to $415.3 million in the reported quarter. This downside resulted from decline in advisory fees (down 13.9%). On an adjusted basis, net revenues were $419.8 million, down 10%.

Total expenses declined 5.5% to $324.1 million from the prior-year quarter. This decrease resulted from fall in employee compensation and benefits expenses.

Adjusted compensation ratio was 58%, in line with the year-earlier quarter’s figure.

Adjusted operating margin came in at 22.8% compared with the prior-year quarter’s 26.7%.

Quarterly Segment Performance (Adjusted)

Investment Banking: Net revenues dropped 11% year over year to $403.7 million. Also, operating income slipped 24% to $311.9 million. Advisory client transactions were 217,000, up 8% year over year.

Investment Management: Net revenues were $16.1 million, up 4% from the comparable quarter last year. Operating income was $3.9 million compared with $4.2 million recorded a year ago. However, AUM of $9.8 million was reported in the first quarter, up 4%.  

Balance Sheet Position

As of Mar 31, 2019, cash, cash equivalents, marketable securities and certificates of deposit totaled $551.8 million. Further, current assets exceeded current liabilities by $690.7 million as of the same date.

Capital Deployment

During the Mar-end quarter, the company repurchased 1.2 million shares at average cost of $86.19 and returned $137.8 million to shareholders, including dividends.

Recently, the company increased the quarterly common stock dividend to 58 cents per share, up 16% from the prior payout. The new dividend will be paid on Jun 14, to shareholders of record as of May 31, 2019.

Our Viewpoint

Evercore displayed an impressive performance in the January-March quarter. Prudent expense management depicts earnings stability. Further, the company’s strategic initiatives to bolster its investment banking segment bode well. Also, it remains well poised to undertake any opportunistic expansion given its sound liquidity position. However, lower revenues are a concern.

Evercore Inc Price, Consensus and EPS Surprise

Evercore Inc Price, Consensus and EPS Surprise | Evercore Inc Quote

Currently, Evercore carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Banks

TD Ameritrade Holding Corporation AMTD reported second-quarter fiscal 2019 (ending Mar 31) earnings of 93 cents per share, in line with the Zacks Consensus Estimate. The figure jumped 27% from the prior-year quarter.

Charles Schwab’s SCHW first-quarter earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 66 cents. Also, earnings increased 25% from the prior-year quarter. Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

E*TRADE Financial ETFC delivered a positive earnings surprise of 16% in the first quarter. Earnings of $1.09 per share comfortably beat the Zacks Consensus Estimate of 94 cents. Moreover, the results compared favorably with the 88 cents recorded in the prior-year quarter.

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