Eaton Vance (EV) - Sure Dividend

[Pages:3]Eaton Vance (EV)

Updated March 1st, 2019 by Jonathan Weber

Key Metrics

Current Price:

$42

Fair Value Price: $54

% Fair Value:

78%

Dividend Yield:

3.4%

Dividend Risk Score: A

5 Year CAGR Estimate: 5 Year Growth Estimate: 5 Year Valuation Multiple Estimate: 5 Year Price Target Retirement Suitability Score:

15.3% 6.8% 5.1% $75 A

Volatility Percentile: 65.4%

Momentum Percentile: 11.9%

Growth Percentile:

65.6%

Valuation Percentile: 91.2%

Total Return Percentile: 92.8%

Overview & Current Events

Eaton Vance is an asset manager based in Boston. The company, which was founded in 1924, is not among the biggest asset managers in the US. Its market capitalization is just $4.8 billion, much smaller than that of peers such as BlackRock, which has a market capitalization of $66 billion. Eaton Vance offers, among others, closed-end funds, mutual funds, term trusts and exchange-traded managed funds (NextShares).

Eaton Vance reported its first quarter (fiscal 2019) earnings results on February 26. The company announced that it had generated revenues of $406 million during the quarter, which was 3.3% less than the revenues that Eaton Vance generated during the previous year's first quarter. Eaton Vance's assets under management, which are a key determinant for the company's revenue performance, declined to $445 billion during the first quarter, which was 1% less than the assets under management during the previous year's first quarter. This is understandable when we account for the fact that equity markets were very volatile during Eaton Vance's fiscal first quarter. Eaton Vance was able to generate positive net flows into its funds during its fiscal first quarter, which is noteworthy, as most other asset managers were battling with the negative impact of outflows during that period, as investors pulled their money from the rough equity markets.

Eaton Vance was able to generate earnings-per-share of $0.73 during its first quarter, which was 6% less than the company's earnings-per-share from the previous year's period.

Year EPS DPS Shares

2009 $1.08 $0.63 117

2010 $1.40 $0.66 118

2011 $1.75 $0.73 115

Growth on a Per-Share Basis

2012 2013 2014 2015 2016 $1.72 $1.53 $2.44 $2.29 $2.12 $0.77 $0.82 $0.91 $1.02 $1.08 116 121 118 116 114

2017 $2.42 $1.15 119

2018 $3.22 $1.25 121

2019 $3.36 $1.40 120

2024 $4.67 $2.10 115

Eaton Vance grew its earnings-per-share by 11% annually after the financial crisis, but recently the growth rate has come down to a ~7% annual pace. During the financial crisis Eaton Vance remained profitable, but saw a sizeable hit to its earnings-per-share. It still fared better than many other companies from the financial industry, though.

Like most asset managers, Eaton Vance has rather low variable costs, so growth in assets under management allows the company to increase its profit margins at a considerable pace. This principle works in the other direction as well, though ? assets under management declines go hand in hand with revenue decline and profit declines. This was visible in the most recent quarter, when net earnings declined faster than Eaton Vance's revenues. Eaton Vance's operating margin was still relatively high during the last couple of quarters as its margins did not see as much downward pressure as that of many other asset managers.

As long as Eaton Vance manages to keep its AUM growing in the long run, its profits should continue to grow at a solid pace. Due to the fact that Eaton Vance manages to produce positive net flows, its assets under management should continue to grow going forward, although volatility in equity markets can be a short-term headwind.

Eaton Vance offers compelling dividend growth rates. The company has increased its dividend by 9% annually over the last five years. The most recent dividend increase was even larger than that at 13%.

Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

Eaton Vance (EV)

Updated March 1st, 2019 by Jonathan Weber

Valuation Analysis

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Now 2024 Avg. P/E 22.1 21.7 16.6 15.3 24.8 15.7 17.3 16.4 18.7 13.7 12.5 16.0 Avg. Yld. 2.6% 2.2% 2.5% 2.9% 2.2% 2.4% 2.6% 3.1% 2.5% 2.8% 3.4% 2.8%

Eaton Vance trades at slightly above 12 times this year's (fiscal 2019) expected earnings-per-share right now. This represents a substantial discount compared to how the company's shares were valued in the past. The valuations of most asset managers have declined over the last couple of months, due to rough equity markets and worries about ETF competition. Total returns should be positively impacted by multiple expansion over the coming years.

Safety, Quality, Competitive Advantage, & Recession Resiliency

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2024 Payout 58.3% 47.1% 41.7% 44.8% 53.6% 37.3% 44.5% 50.9% 47.5% 38.8% 41.7% 45.0%

Eaton Vance's dividend payout ratio has been around 50% for the majority of the last decade. The company will likely pay out roughly 40% of its net profits in the form of dividends this year, while Eaton Vance also spends significant amounts of money on share repurchases ($115 million during the first quarter). In the case of an earnings decline Eaton Vance would likely cut back on buybacks while maintaining its dividend payments.

Some asset managers are having a hard time competing with exchange traded funds, but Eaton Vance's portfolio remains attractive for investors. The company managed to generate substantial net inflows during the last couple of quarters. This is partially due to Eaton Vance's exchange-traded managed funds, an asset class not offered by many asset managers, but also due to the strong performance of Eaton Vance's overall investment products. The company's product portfolio makes it resilient against the rise of ETFs, and should allow for ongoing growth in coming years.

Final Thoughts & Recommendation

Eaton Vance is an asset manager that has a product portfolio with unique asset classes such as exchange-traded managed funds, and whose funds performed well in the past. These facts serve as competitive advantages, which is why the growth and total return outlook for Eaton Vance is positive. We rate Eaton Vance a buy at the current price due to high expected total returns and the stock's compelling combination of value, growth and current yield.

Total Return Breakdown by Year

50%

Eaton Vance (EV): Total Return Decomposition

40%

37.3%

30%

20%

10%

21.5%

28.6%

15.3%

0% -10% -20%

2013

-2.8%

-8.1%

-7.7%

2014

2015

2016

2017

2018

Total Return EPS Growth Dividend Return Valuation Change

Sure Analysis Estimate

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Disclosure: This analyst has no position in the security discussed in this research report, and no plans to initiate one in the next 72 hours.

Eaton Vance (EV)

Year Revenue Gross Profit Gross Margin SG&A Exp. D&A Exp. Operating Profit Operating Margin Net Profit Net Margin Free Cash Flow Income Tax

2009 890 700 78.6% 315 21 233 26.2% 130 14.6% 118 71

Updated March 1st, 2019 by Jonathan Weber

Income Statement Metrics

2010 2011 2012 2013 2014 2015

1116 1249 1209 1358 1450 1404

873 718 690 776 855 798

78.2% 57.5% 57.0% 57.1% 58.9% 56.9%

369 161 161 172 175 234

25

25

25

25

21

22

348 426 393 453 520 400

31.1% 34.1% 32.5% 33.4% 35.8% 28.5%

174 215 203 194 304 230

15.6% 17.2% 16.8% 14.3% 21.0% 16.4%

84

160 174 110

91

208

126 157 142 144 187 143

2016 1343 738 54.9% 153

20 414 30.8% 241 18.0% 330 154

2017 1529 846 55.3% 171 19 483 31.6% 282 18.5% 52 174

2018 1702 966 56.7% 141 N/A 555 32.6% 382 22.4% N/A 157

Balance Sheet Metrics

Year

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Assets

1075 1259 1831 1979 2407 1860 2116 1730 2331 3599

Cash & Equivalents 311 308 527 499 499 394 628 424 611 817

Accounts Receivable N/A N/A N/A 134 170 186 188 186 200 237

Goodwill & Int. Ass. 217 209 210 214 303 294 293 295 349 341

Total Liabilities

724 781 1269 1366 1736 1203 1495 1026 1319 2491

Accounts Payable 52

61

51

59

59

65

65

60

68

91

Long-Term Debt 514 500 978 947 1100 726 971 572 631 1493

Shareholder's Equity 307 410 460 612 670 655 620 704 1011 1107

D/E Ratio

1.67 1.22 2.12 1.55 1.64 1.11 1.57 0.81 0.62 1.35

Profitability & Per Share Metrics

Year

2009 2010 2011 2012 2013 2014 2015

Return on Assets 12.7% 14.9% 13.9% 10.7% 8.8% 14.3% 11.6%

Return on Equity 47.6% 48.6% 49.4% 37.9% 30.2% 45.9% 36.1%

ROIC

16.1% 18.9% 17.1% 13.1% 11.6% 19.3% 15.5%

Shares Out.

117 118 115 116 121 118 116

Revenue/Share 7.38 9.10 10.41 10.50 11.09 11.93 11.88

FCF/Share

0.98 0.68 1.33 1.52 0.90 0.75 1.76

Note: All figures in millions of U.S. Dollars unless per share or indicated otherwise.

2016 12.5% 36.5% 16.8% 114 11.78 2.89

2017 13.9% 32.9% 19.3% 119 13.13 0.45

2018 12.9% 36.1% 18.0% 121 13.85 N/A

Disclaimer

Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this research report should be construed as a recommendation to follow any investment strategy or allocation. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in marketable securities. Past performance is not a guarantee of future performance.

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