Evercore Inc. (NYSE: EVR) is attractive to us as another top-tier 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 the best reputation in investment banking all are 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 be a market favorite.
Strong brand, strong results
Evercore is a boutique investment bank specializing in investment banking activities including M&A advisory, capital markets advisory and restructuring. Outside of major banks like Goldman Sachs & Co and JP Morgan, which have considerable non-investment banking businesses (ie sales and trading, commercial banking, etc.), Evercore is one of the top banks in investment by commission volume. Also, as you can see below, year-to-date, Evercore generated most of its revenue from the US markets, making it a pure play for investors who only want exposure to the US market for advisory services.
Evercore has been delivering exceptional financial results for investors over the past few years. In the past 5 years, Evercore has nearly doubled its revenue and grown its revenue at an impressive 15% CAGR. What is more impressive is that during this time, Evercore has more than tripled its EPS, which represents a CAGR of close to 26%. This stellar financial performance has been fairly consistent, enduring through the volatile market conditions of the past 5 years.
While investment banking revenue fell 38% in the first half of this year compared to the first half of last year, Evercore has reported a year-over-year increase in revenue over the same time period. As seen below, despite worse economic conditions in 2022 than in 2021, Evercore has reported a slight increase in GAAP and adjusted revenue in its “Year to Date” results. This stark contrast between market conditions and Evercore’s resilient financial performance further supports the point that Evercore will be able to thrive in any environment, as it has over the past few years.
Policies favorable to shareholders
Evercore’s management has been friendly to shareholder value and has historically implemented generous buyback programs and consistently paid dividends to shareholders. Earlier this year, Evercore began a $1.4 billion share buyback program, which is nearly 33% of its current market cap. Evercore’s massive buyback program demonstrates management’s confidence in the company and its business prospects, while also 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 consistent dividend paying company and recently paid out $0.72 per share this quarter, which equates to an annualized dividend yield of 2.83%. That yield is comfortably higher than the S&P 500’s current yield, and Evercore has a track record of consistency when it comes to dividend payouts. Compared to the quarterly payout of $0.34 per share in 2017, Evercore has increased its dividend by more than 100% and has grown its dividend at a CAGR of ~16%, which is widely outperforming the S&P 500 during this time period.
We believe the trends indicate that the share price will rise from here. Using historical data, the P/E valuation for Evercore stock is at all-time lows and trades around 6.0 times earnings. Even when we go back to P/E multiples of roughly 12.0x to 15.0x based on TTM earnings, we see that the stock price can rise 100% to 150% from its current levels. and Also, due to the massive buyback program, we see that FCF per share has increased rapidly and now stands at $25 FCF per share. This means that at current levels, roughly a quarter of the stock’s value is backed by FCF. This is quite attractive for value-focused investors, and this should support the share price. We believe that as the repurchase program continues, shareholders will see the value of their holdings increase.
Evercore is a premier boutique investment bank that deserves the attention of investors seeking consistent dividend income and potential for growth in shareholder value. Evercore has had a track record of success, and there are no signs of the streak ending anytime soon. With double-digit revenue and earnings CAGR over the past 5 years, as well as the start of a large buyback program, we believe current price levels are perfect entry points for investors to accumulate shares these reduced shares.