Moody's Investors Service, a rating arm of Moody's Corporation MCO , affirmed the ratings of Eaton Vance Corp.EV . The outlook for the company remained stable. Its long-term issuer and senior unsecured debt ratings are A3 while short-term issuer rating is P-2.
Looking at Eaton Vance's price performance, the stock has gained 32.0% over the last one year, outperforming the Financial - Investment Management industry's rally of 20.2%.
This price performance is backed by solid estimates revisions. The Zacks Consensus Estimate for the current year has been revised 8% upward, in the last 60 days. As a result, the stock sports a Zacks Rank #1 (Strong Buy).
Reasons Behind the Affirmation
The ratings consider the company's stability with regards to performance, despite changes in its asset mix. Though Eaton Vance witnessed higher assets under management (AUM) on a year-over-year basis, revenues remain under pressure due to increasing portion of assets managed by affiliate, Parametric.
Moody's ratings reflect the company's efforts to innovate new products and diversify product offerings that have encouraging growth prospects. Further, Eaton Vance's stabilized financial position and strong retail distribution presence also support the ratings.
Per Moody's, the company is gradually developing into a solutions-oriented business. Moreover, given the underperformance of active asset managers in broad market indices, Eaton Vance's exposure management, custom beta, tax-managed and ESG offerings allow it to be less dependent on investment outperformance.
The stable outlook reflects the rating agency's anticipation that the company will maintain its robust organic growth with its tax-managed custom beta, exposure management businesses and a financial leverage ratio under 2.0x (per Moody's calculation).
What Could Change the Ratings?
The ratings can improve if Eaton Vance experiences higher earnings that lower the financial leverage ratio to 1.0x (per Moody's calculation) and expansion in margins due to growth in higher-fee active strategies. Also, growth in organic AUM because of sooner-than-expected profitability of its investments in NextShares and global equity initiatives can trigger upward movement in ratings.
On the other hand, the ratings can fall if the financial leverage ratio goes above 2.0x (per Moody's calculation) due to lower earnings, reduced higher-fee assets that create pressure on margins and lead to average pre-tax income margin below 30%. Higher reputational risk due to its exposure to liquid retail products investing in illiquid underlying assets can also lower ratings.
Other Stocks that Warrant a Look
Franklin Resources, Inc.'s BEN earnings estimates have been revised 4.0% upward for the current year, in the past 60 days. Also, its shares have rallied 11.2%, over the last six months. It carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Lazard Ltd. LAZ witnessed an upward earnings estimate revision of 3.3% for the current year, in the past 60 days. Also, its shares have gained 10.1%, over the last six months. It carries a Zacks Rank #2.
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