AI Disruption And Antitrust Enforcement Will Erode Revenues

Key Takeaways

• Technology disruption and client in-sourcing are shrinking Evercore's traditional revenue sources and increasing volatility in earnings.
  
• Margin pressure is mounting from regulatory headwinds, stiff competition, and relentless cost inflation across the business.
  
• Evercore's diversified advisory revenue streams, global expansion, talent investment, and growing private capital presence position it for stable earnings and market share growth despite economic cycles.

Catalysts

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

• Rapid advancements in AI-enabled deal platforms and technology-driven disintermediation threaten to erode Evercore's traditional advisory fee pools, undermining the firm's ability to sustain long-term revenue growth as clients increasingly turn to automated, lower-cost advisory alternatives.
  
• Escalating global regulatory scrutiny and aggressive anti-trust enforcement are set to dampen large-scale M&A and cross-border transaction activity over the coming years, capping Evercore's addressable market and resulting in weaker advisory revenues and fewer high-margin deals.
  
• An accelerating internalization trend, where major corporates build in-house deal teams, is poised to further shrink Evercore's core client base and reduce demand for external advice, negatively impacting revenue stability and making earnings more volatile across market cycles.
  
• Intensifying competition from specialist and low-cost boutique advisory firms is likely to drive industry-wide fee compression and loss of pricing power, causing persistent downward pressure on net margins and profitability as Evercore is forced to compete more aggressively for mandates.
  
• Persistent upward trajectory in compensation and non-compensation expenses, especially as Evercore continues to hire and faces inflation in information services and occupancy costs, will erode operating margins and reduce earnings leverage even if revenues grow modestly.

Evercore Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Evercore compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Evercore's revenue will grow by 15.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 14.2% today to 18.8% in 3 years time.
• The bearish analysts expect earnings to reach $887.3 million (and earnings per share of $20.48) by about July 2028, up from $438.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, down from 25.7x today. This future PE is lower than the current PE for the US Capital Markets industry at 27.7x.
• Analysts expect the number of shares outstanding to grow by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.74%, as per the Simply Wall St company report.

Evercore Future Earnings Per Share Growth

Risks

• Evercore is demonstrating robust growth in both M&A and non-M&A advisory businesses, with over 50% of revenues from diversified sources beyond M&A, indicating a resilient and adaptive revenue base that can drive long-term revenue stability and growth.
  
• The firm reports record-high backlogs, growing engagement letters, and healthy client dialogues across multiple business lines, suggesting substantial pent-up transaction demand that could rapidly convert into strong fee income and earnings once macroeconomic volatility decreases.
  
• Expansion into new sectors and geographies, as evidenced by the addition of senior talent in Industrials, Healthcare, Private Capital Advisory, and Europe, positions Evercore to capture market share globally and further boost long-term top-line growth.
  
• Investments in internal talent development, consistent hiring of top-performing bankers, and retention of experienced leaders underpin high productivity and client service, supporting differentiation and potentially higher operating margins over time, even through industry cycles.
  
• Rapid growth in the Private Capital Advisory segment, particularly in continuity funds and LP secondaries, reflects the firm's ability to capitalize on evolving private markets activity, broadening its fee pool and reducing reliance on traditional M&A, thus enhancing future revenue and earnings resilience.

Valuation

• The assumed bearish price target for Evercore is $230.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Evercore's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $331.0, and the most bearish reporting a price target of just $230.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $887.3 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of $291.53, the bearish analyst price target of $230.0 is 26.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.