Eaton Vance Corp. (EV) is scheduled to report fiscal fourth-quarter 2014 (ended Oct 31) results on Tuesday Nov 25, before the market opens.
Last quarter, Eaton Vance reported adjusted earnings of 63 cents per share, up 21% year over year. Notably, earnings came in line with the Zacks Consensus Estimate. Results benefited from growth in revenues, partially offset by elevated operating expenses.
Will Eaton Vance be able to beat the estimates this time around? Let us see how things have shaped up for this announcement.
Factors Influencing Q4 Results
Dealing primarily in asset management business, Eaton Vance does not face any substantial threat from the overall low interest rate environment. The company expects a slight increase in performance fees in the quarter, driven by seasonality.
Further, we believe that investment advisory and administrative fees should continue to improve as major U.S. equity indexes witnessed an uptick during the quarter and Eaton Vance has benefited from this trend. Hence, total revenue should grow, driven by a rise in fee income.
Additionally, management expects effective investment advisory and administrative fee rate for active equity strategies to remain at approximately 65 basis points (bps) and fixed income strategies at roughly 45 bps. Effective fee rate for floating rate income strategy will be around 55 bps, alternative strategy in the low-to-mid 60s and implementation services at nearly 10 bps.
However, Eaton Vance’s inability to check expenses remains a major concern for us. Total compensation and related costs should rise in the quarter as the company continues to hire additional workforce. Moreover, non-compensation expenditure will increase owing to higher distribution expenses, service fee expense and fund-related costs.
Eaton Vance’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained stable at 65 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Eaton Vance is likely to beat the Zacks Consensus Estimate in the fiscal fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Eaton Vance is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 65 cents.
Zacks Rank: Eaton Vance’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks to Consider
Some better-ranked stocks in the asset management space worth considering include Man Group plc (MNGPY), Monroe Capital Corporation (MRCC) and Northstar Asset Management Group Inc. (NSAM). All of these have a Zacks Rank #2.
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