Expanding Global Presence And Diversifying Services Poise Firm For Revenue Surge Amid Financial Challenges

Key Takeaways

• Expansion in client services, senior staff, and strategic focus on geographic growth, especially in Europe, aims to drive higher revenue from diverse sources.
  
• Investments in Evercore ISI and strong activity in Private Capital Advisory and Wealth Management segments indicate potential for enhanced revenue through service diversification.
  
• Evercore's expansion and reliance on M&A recovery amidst market volatility and competition may strain margins and earnings if anticipated growth falters.

Catalysts

Operates as an independent investment banking advisory firm in the United States, Europe, Latin America, and internationally.

• Expanded client services and increased number of Senior Managing Directors (SMDs) are poised to boost revenue through higher transaction volumes and broadened client engagement, impacting revenue positively.
  
• Growth in the advisory segment, especially in significant transactions, indicates a growing market share and enhanced revenue potential from advisory fees.
  
• Investment in Evercore ISI business and hiring of top-tier Research Analysts aim to strengthen the firm's research capabilities, potentially increasing client engagement and service diversification, which could lead to enhanced revenue streams.
  
• Evercore's strategic focus on geographic expansion, particularly in Europe with new hires in Paris, suggests potential for increased international revenue and a broader client base.
  
• Strong activity in the Private Capital Advisory and Wealth Management segments signals an opportunity for revenue growth in these areas, supported by robust activity levels and a record for assets under management.

Assumptions

• Analysts are assuming Evercore's revenue will grow by 19.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 16.3% in 3 years time.
• Analysts expect earnings to reach $724.9 million (and earnings per share of $13.64) by about September 2027, up from $294.3 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 24.0x on those 2027 earnings, down from 33.1x today. This future PE is greater than the current PE for the US Capital Markets industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 7.39% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Risks

• Evercore's continuous investment in talent and geographic expansion, like the hiring in Paris, increases operational costs, potentially affecting net margins.
  
• The firm’s reliance on a steady recovery in M&A activity poses a risk if market conditions change or recover slower than anticipated, impacting revenue growth.
  
• Intense competition in investment banking and advisories, especially in areas like Europe where Evercore is looking to expand, could affect its market share and revenue.
  
• Market volatility and geopolitical risks that impact timing and completion of deals could lead to unpredictable fluctuations in earnings.
  
• The need to maintain a competitive compensation ratio amidst increasing headcount and inflationary pressures could pressure profit margins if revenue does not increase as expected.

Valuation

• The analysts have a consensus price target of $265.43 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 $306.0, and the most bearish reporting a price target of just $245.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.4 billion, earnings will come to $724.9 million, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 6.7%.
• Given the current share price of $254.13, the analyst's price target of $265.43 is 4.3% 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.