Evercore Earnings: As Expected, Results Weak and Environment Challenging

As expected, Evercore’s EVR first-quarter earnings were relatively weak, and the environment remains challenging, so we don’t forecast a strong recovery in the near term. The company reported net income to common shareholders of $83 million, or $2.06 per diluted share, on $572 million of net revenue. Net revenue declined 21%, and operating income declined 49% from the previous year, as the company was still working on its strong deal backlog at the beginning of 2022 and about the full force of macroeconomic uncertainty is currently affecting results. The $572 million of net revenue in the quarter is the lowest since 2020 when the world was uncertain of the effects of COVID-19. While we believe earnings will remain subdued for a year, we believe shares are undervalued looking at longer-term earnings, and we don’t expect to make a material change to our $166 fair value estimate for narrow-moat-rated Evercore.

Economic confidence, access to financing, and valuation are commonly cited drivers of the mergers and acquisitions, or M&A, activity that composes about two thirds of Evercore’s revenue. Valuations are reasonable, but there’s material economic uncertainty and financing markets are tighter than they’ve been in years. Financing might become even tighter given the lower credit and duration appetite of banks after the collapse of Silicon Valley Bank. For M&A to strongly recover, we need either an “all clear” signal for the economy or for the economy to enter a recession and establish a bottom along with low interest rates. We believe either of these scenarios is likely to take several quarters to over a year to occur. Evercore has a strong restructuring advisory business that does well in tough economic times, but it’s a fraction of the size of the M&A business, so it isn’t enough to propel a strong recovery in earnings.

Along with first-quarter earnings, the company announced a 6% increase in its quarterly dividend to $0.76.