Eaton Vance: Little Upside

| About: Eaton Vance (EV)

Summary

Fundamentally I believe the company to be fairly valued now on next year's earnings estimates and earnings growth expectations with great near-term earnings growth estimates.

Financially the company does pay a decent dividend and has excellent return on equity.

On a technical basis the risk/reward ratio shows me there is more reward than risk right now.

Having opened my position in Eaton Vance (NYSE:EV) in late November of 2016 and given the fact that it is trading near its 52-week highs I believe it is a great time to investigate what is going on with this stock. The stock is off to an underwhelming beginning of the year moving up only 2.5% in just the first month and a half. With Evercore ISI believing that active managers should be making a comeback, it has been a pretty horrible showing against an S&P 500 having been behind the index for pretty much the last two weeks. I own the stock in my Portfolio of 12 and the stock hasn't performed to my expectations yet. I feel it is important to examine the specific valuation, financial, and technical situations of Eaton Vance to see what is really going on with the stock right now.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 20.25, 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 15.57 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.52), 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 13.32%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.32%.

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 2.61% with a payout ratio of 53% of trailing 12-month earnings while sporting return on assets, equity and investment values of 12.8%, 38.1%, and 20.4%, respectively, which are all respectable values.

The really high return on equity value (38.1%) 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 is highest in the mid-cap and over asset management industry ahead of Lazard (NYSE:LAZ) which sports an ROE of 32.4% and ahead of Federated Investors (NYSE:FII) which sports an ROE of 31.2%].

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.61% 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 36 years at a 5-year dividend growth rate of 9%.

Technicals

Looking first at the relative strength index chart [RSI] at the top, I see the stock is approaching overbought territory with a current value of 56.2 relative to the rest of the market. Usually a value of 70 indicates an overbought condition. 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 increasing in height which tells me bullish moment is about to mount in the name. As for the stock price itself ($42.92), I'm looking at$44.51 to act as resistance and the 50-day simple moving average (currently $42.20) t o act as support for a risk/reward ratio which plays out to be-1.7% to 3.7%.

Wrap Up

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

I actually initiated my position in the company in late November and have been pretty happy with the purchase thus far. But I never look to initiate a full position in a name immediately and think the stock is a buy only if it is below $35 (which is the midway point of the 52-week range). I never like to dive full bore into a name, I always buy in increments.

I swapped out of Target (NYSE:TGT) for Eaton Vance during the portfolio change-out in the fourth quarter of 2016 because I had a good gain in Target (12.9% or 30.4% annualized) and felt that it might lag the rest of the market for the coming three months.

For now, the chart below compares how Target and Eaton Vance have done against each other and the S&P 500 since I swapped the names. It does look like the trade has worked out from the chart and that is because the retail sector has struggled of late. For now I'm going to hold onto the name for the dividend portion of my portfolio and see how it works out for me.

When it is all said and done, it matters what the stock has done in an investor's portfolio. For me, Eaton Vance is one of my mid-sized positions and has been doing well, as I'm up 5.8% on the name, while the position occupies roughly 4.8% of my portfolio. I continue to believe in the name as great dividend growth company. I own the stock for the dividend portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 13.9% since the inception while the S&P 500 is up 11.4%. Below is a quick glance of my portfolio and how each position is performing. Thank you for reading and I look forward to your comments!

Company

Ticker

% Change incl. DIV

% of Portfolio

Skyworks Solutions Inc.

(NASDAQ:SWKS)

15.58%

10.63%

Electronic Arts Inc.

(NASDAQ:EA)

15.06%

3.92%

Facebook, Inc.

(NASDAQ:FB)

10.40%

9.65%

The Home Depot, Inc.

(NYSE:HD)

7.41%

4.92%

Eaton Vance Corp

5.84%

4.84%

Diageo plc

(NYSE:DEO)

4.11%

10.50%

AbbVie Inc.

(NYSE:ABBV)

1.30%

3.79%

Silver Wheaton Corp.

(SLW)

-1.74%

7.58%

Starbucks Corporation

(NASDAQ:SBUX)

-1.95%

5.56%

General Electric Company

(NYSE:GE)

-3.69%

5.10%

V.F. Corporation

(NYSE:VFC)

-7.94%

8.45%

Gilead Sciences Inc.

(NASDAQ:GILD)

-18.23%

19.13%

Cash

$

5.93%

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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