Eaton Vance Is A Fairly Valued Stock That Has Been Growing Its Dividend For 35 Years

| About: Eaton Vance (EV)

Summary

The stock is fairly valued on next year's earnings estimates and earnings growth potential but has great near-term earnings growth estimates.

The company pays a good dividend with an average payout ratio, has been growing the dividend for the past 35 years, and has a great return on equity.

Barron's recently stated that the stock may offer great value for 2016.

Eaton Vance (NYSE:EV), along with its subsidiaries, is engaged in managing investment funds and providing investment management and advisory services to high net-worth individuals and institutions in the United States, Europe and other international markets. On November 24, 2015, the company reported fiscal fourth-quarter earnings of $0.53 per share which missed analyst estimates by $0.06. In the past year, the company's stock is down 21.43% and is losing to the S&P 500, which has lost 0.31% in the same time frame.

I recently bought the stock in the dividend portion of my portfolio, but I would like to evaluate it for the first time here on Seeking Alpha in a long time. The company was recently offered up as an asset manager with value by Barron's, and with this bit of news, I feel that it is important to evaluate the company on a fundamental, financial, and technical basis to see if it's worth adding additional shares to my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.24, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.36 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.68 per share and I'd consider the stock inexpensive until about $40. The 1-year PEG ratio (1.28), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.52%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.52%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.2% with a payout ratio of 55% of trailing 12-month earnings while sporting return on assets, equity and investment values of 12.6%, 36.7%, and 16.2%, respectively, which are all respectable values.

The really high return on equity value (36.7%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Eaton Vance has the seventh highest ROE in the asset management industry out of 162 companies).

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.2% yield of this company is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past 35 years at a 5-year dividend growth rate of 7.8%.

Technicals

Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle ground territory with a current value of 40.1 relative to the rest of the market. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height which tells me bearish momentum is in the name. As for the stock price itself ($33.11), I'm looking at the 200-day simple moving average (currently $34.73) to act as resistance and $26.08 to act as support for a risk/reward ratio which plays out to be -21.2% to 4.89%.

Wrap Up

Fundamentally, I believe the company to be fairly valued now on next year's earnings estimates and on earnings growth expectations with great near-term earnings growth estimates. Financially, the company pays a good dividend and has great return on equity. On a technical basis, the risk/reward ratio shows me there is more risk than reward right now.

I actually initiated my position in Eaton Vance in late December and have been pretty happy with the purchase thus far. But I never look to initiate a full position in a name immediately and will not until it gets to below $31 (which is my cost basis) if it ever gets there. I never like to dive full bore into a name, I always buy in increments.

I swapped out of 3M (NYSE:MMM) for Eaton Vance during the portfolio change-out in late November because I had a good gain in 3M (13.4%) and felt that it might lag the rest of the market for the coming three months. So, hopefully, I got out near the top in 3M, and hopefully, Eaton Vance beats it for the coming quarter. For now, here is a chart to compare how 3M and Eaton Vance have done against each other and the S&P 500 since I swapped the names. It doesn't look like the trade has worked out from the chart below and that is because Eaton Vance dropped right after earnings on November 24. I knew I wanted to swap out of 3M in late November but also knew that I wanted to wait until after earnings to pick up Eaton Vance. So the trade has worked out very well for me for now. I am actually up 4.8% on the name because I bought it towards the middle of the day on December 22, 2015.

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long EV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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