Evercore: The Best Discount Boutique Investment Bank Stocks

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Thesis

Evercore Inc. (NYSE: EVR) is attractive to us as another top investment bank that can deliver good returns to shareholders regardless of economic conditions. We believe in management’s commitment to shareholder value, strong historical financial performance and reputation for best-in-class investment banking are all key factors that make this stock a great investment. Although the stock is under pressure from a slowing economy and tightening monetary policy, once these headwinds dissipate, we believe Evercore will once again become a market favorite.

Strong brand, strong results

Evercore is a boutique investment bank that specializes in investment banking activities such as M&A advisory, capital markets advisory and restructuring. Outside of the big banks like Goldman Sachs & Co and JP Morgan, which have significant non-investment banking businesses (ie sales and trading, merchant banking, etc.), Evercore is one of the top investment banks by volume of fees. Also, as seen below, on a year-to-date basis, Evercore generates the majority of its revenue from the US markets, making it a pure play for investors who may only want exposure to the US advisory market.

Financial Times

Financial Times

Over the past few years, Evercore has delivered outstanding financial results for investors. Over the past 5 years, Evercore has nearly doubled its revenue and grown its revenue at an impressive 15% CAGR. More impressively, during that time, Evercore has more than tripled its EPS which represents nearly 26% CAGR. This stellar financial performance has been quite consistent, weathering the volatile market conditions over the past 5 years.

Evercore's earnings presentation

Evercore’s earnings presentation

Evercore's earnings presentation

Evercore’s earnings presentation

Although investment banking revenue fell 38% in the first half of this year compared to the first half of the previous year, Evercore actually reported a year-over-year increase in revenue over the same time frame. As seen below, despite worse economic conditions in 2022 than in 2021, Evercore reported a slight increase in GAAP and adjusted earnings in its year-to-date results. This stark contrast between market conditions and Evercore’s robust financial performance further supports the proposition that Evercore will be able to thrive in any environment, as it has done over the past few years.

Evercore Press Release

Evercore Press Release

Shareholder-friendly policies

Evercore’s management is shareholder value friendly and has historically implemented generous buyback programs and has consistently paid dividends to shareholders. Earlier this year, Evercore launched a $1.4 billion share buyback program, which is close to ~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 back to its shareholders. In addition to the buyback program, Evercore is a consistent dividend paying company and recently paid out $0.72 per share this quarter, which equates to a 2.83% annualized dividend yield. 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 paying dividends. Compared to a 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 ~16% CAGR, significantly outperforming the S&P 500 over that time period.

NASDAQ

NASDAQ

A cheap estimate

We believe the trends point to the share price going higher from now on. Using historical data, Evercore’s stock P/E is at historic lows and trades at around 6.0x earnings. Even going back to roughly 12.0x to 15.0x P/E ratios based on TTM earnings, we see the stock price could rise 100% to 150% from its current levels. and Additionally, due to the massive repurchase program, we see FCF per share rising rapidly and now hovering at $25 FCF per share. This means that, based on current levels, roughly a quarter of the stock’s value is backed by FCF. That’s quite attractive to value-focused investors, and that should provide some support for the share price. We believe that as the buyback program continues, shareholders will see their holdings increase in value.

Diagram
EVR PE Ratio data from YCharts

Conclusion

Evercore is a top boutique investment bank that deserves the attention of investors looking for consistent dividend income and potential for growth in shareholder value. Evercore has a track record of success and there are no indications that the streak will end anytime soon. With a double-digit CAGR in revenue and earnings over the past 5 years, and the start of a massive buyback program, we believe current price levels are perfect entry points for investors to accumulate stakes in this discounted stock.

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