Evercore, Moelis stock slump after UBS downgrades to Sell amid M&A slump

Sep. 23, 2022 11:55 AM ETMoelis & Company (MC), EVRBy: Liz Kiesche, SA News Editor

Risk and reward balance

ChristianChan

Evercore (NYSE:EVR) stock has dropped 6.2% and Moelis & Co. (NYSE:MC) stock has slid 6.9% in Friday midday trading after UBS analyst Brennan Hawken downgraded the investment bank advisory firms to Sell from Neutral as both are likely to see fixed compensation expense ratio rise while M&A activity stays sluggish.

On Evercore (EVR): "Negative operating leverage is likely to persist given that EVR's public revenue is down 40% Y/Y, compared to a 29% average decline across the boutiques," Hawken wrote in a note to clients."

And while the company has invested in diversifying away from core M&A, its revenue is still heavily weighted toward advisory fees (80% of total revenue), he said.

Hawken sees fixed compensation adding considerable "upward pressure to the company's adjusted comp ratio," as he forecasts 65% in H2 2022 vs. 59% in H1 2022. "Moreover, MC's revenue picture continues to deteriorate as the public revenue pipeline is down >50% Y/Y, and the pace of replenishment remains sluggish."

Note that earlier in the week, SA's Quant rating flagged Moelis (MC) for a high risk of performing poorly. The SA Quant rating has been flashing red for Evercore (EVR) since April.

Hawken's Sell rating on Evercore (EVR) contrasts with the average Wall Street rating of Buy. Meanwhile, the average Wall Street rating for Moelis (MC) stands at Hold.

SA contributor Sweet Minute Capital is strongly bullish on both Evercore (EVR), citing strong financial results in good times and bad, and Moelis (MC), as restructuring activity offsets the M&A slump

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