Evercore Inc. (NYSE:EVR) is attractive to us as another leading investment bank that can deliver good returns to shareholders regardless of economic conditions. We believe that management’s commitment to shareholder value, strong historical financial results and reputation as the best investment bank are all key factors that make this stock a great investment. Although the stock is under pressure from the economic slowdown and monetary tightening, once these headwinds dissipate, we believe Evercore will once again become a market darling.
Strong brand, strong results
Evercore is an investment bank specializing in investment banking activities, such as mergers and acquisitions advisory, capital markets advisory and restructuring. Apart from large banks like Goldman Sachs & Co and JP Morgan, which have significant non-investment banking activities (i.e. sales and trading, commercial banking, etc.), Evercore is one of the leading investment banks by fee volume. Additionally, as seen below, year-to-date, Evercore has generated most of its revenue from US markets, which is pure play for investors who may not want exposure. than to the US consulting services market.
Evercore has delivered exceptional financial results to investors over the past few years. Over the past 5 years, Evercore has nearly doubled its revenue and grown revenue at an impressive CAGR of 15%. What is more impressive is that during this period, Evercore has more triple its EPS, which represents a CAGR of almost 26%. This excellent financial performance has been fairly consistent and has withstood the volatile market conditions of the past 5 years.
Even though investment banking revenue fell 38% in the first half of this year compared to the first half of the previous year, Evercore actually saw a year-over-year increase in revenue over the same period. As seen below, despite worse economic conditions in 2022 than in 2021, Evercore reported a slight increase in GAAP and Adjusted Revenues in “Year to Date” results. This stark contrast between the state of the market and Evercore’s resilient financial performance further confirms the fact that Evercore will be able to thrive in any environment, as it has in recent years.
Shareholder friendly policies
Evercore’s management has been supportive of shareholder value and has historically implemented generous buyout programs and regularly paid dividends to shareholders. Earlier this year, Evercore launched a $1.4 billion share buyback program, which represents nearly ~33% of its current market capitalization. Evercore’s massive buyout program demonstrates management’s confidence in the company and its business prospects, while at the same time demonstrating a commitment to increasing shareholder value by returning such a large amount of capital to its shareholders. In addition to the buyback program, Evercore has been a regular dividend paying company and recently paid $0.72 per share this quarter, which equates to an annualized dividend yield of 2.83%. This yield is comfortably higher than the current yield of the S&P 500, and Evercore has a proven track record of paying dividends. Compared to the quarterly payout of $0.34 per share in 2017, Evercore increased its dividend by more than 100% and increased its dividend by a CAGR of approximately 16%, which significantly exceeds the S&P500 during this period of time.
We believe the trends indicate that the stock price will rise from here. Using historical data, the P/E valuation of Evercore stock is at historically low levels and trading at around 6.0 times earnings. Even going back to multiples of around 12.0x to 15.0x P/E based on TTM earnings, we see that the stock price can rise 100% to 150% from its current levels. and Additionally, due to the massive buyback program, we see that the FCF per share has increased rapidly and now stands at 25 FCF per share. This means that based on current levels, around a quarter of the stock’s value is backed by FCF. This is quite attractive for value investors, and should provide some support for the stock price. We believe that as the buyback program continues, shareholders will see the value of their holdings increase.
Evercore is a leading investment bank that deserves the attention of investors seeking consistent dividend income and potential for shareholder value growth. Evercore have had a track record of success, and there are no signs that the streak of success will end any time soon. With double-digit revenue and earnings CAGR over the past 5 years, as well as the start of a huge buyback program, we believe that current price levels are perfect entry points for investors to accumulate shares of this title shot.