Healthcare, Industrials And Private Capital Advisory Will Drive Future Success

Key Takeaways

• Diversified platform and strategic hires in growth sectors are set to drive revenue and earnings amid improving transaction levels.
  
• Expansion in global restructuring and liability management promises better net margins, with capital returns to boost EPS through buybacks and dividends.
  
• Heightened geopolitical tensions and macroeconomic challenges could impact Evercore's transaction revenues, earnings, and net margins, alongside reduced market confidence and transaction volumes.

Catalysts

Operates as an independent investment banking firm in the Americas, Europe, Middle East, Africa, and Asia-Pacific.

• Evercore's diversified platform across geographies, sectors, and products positions it to perform well as transaction levels pick up once there is greater clarity in the macroeconomic environment, potentially boosting revenue growth.
  
• The firm's strategic hiring of senior managing directors and internal talent promotions, especially in high-growth areas like Industrials, Healthcare, and Private Capital Advisory, are expected to drive future earnings and revenue.
  
• Record levels in the Private Capital Advisory group, particularly in GP-led continuation vehicles, suggest strong future contributions to revenue growth despite a weaker sponsor M&A backdrop.
  
• The expansion of Evercore's global client base, particularly in restructuring and liability management, could lead to improved net margins as these businesses continue to see increased activity levels.
  
• Evercore’s ongoing capital return strategy, combined with record amounts of capital being returned to shareholders, is expected to positively impact EPS through share buybacks and dividends.

Evercore Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evercore's revenue will grow by 12.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.2% today to 16.4% in 3 years time.
• Analysts expect earnings to reach $728.3 million (and earnings per share of $14.38) by about May 2028, up from $438.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 18.1x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Evercore Future Earnings Per Share Growth

Risks

• Heightened geopolitical and trade tensions along with inflation and interest rate concerns could lead to increased volatility in global financial and asset markets, impacting Evercore's transaction revenues and earnings.
  
• The uncertainty in market conditions is leading to reduced CEO and Board confidence levels, affecting the broader transaction environment and potentially impacting revenue scalability.
  
• Industry-wide global transaction volumes have decreased due to macroeconomic headwinds, which could affect Evercore's revenue from financial sponsor-related activities.
  
• The reopening of equity capital markets and IPO activity is dependent on reduced uncertainty and volatility, posing a risk to capital markets-based revenue if conditions do not improve.
  
• Pressure from increased occupancy costs and rising subscription rates for necessary information services could constrain net margin improvements, particularly in a challenging revenue environment.

Valuation

• The analysts have a consensus price target of $220.375 for Evercore based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $240.0, and the most bearish reporting a price target of just $175.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $728.3 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 7.4%.
• Given the current share price of $205.7, the analyst price target of $220.38 is 6.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.