2 Investment Banks to Buy as M&A Activity Heats Up

NYSE: EVR | Evercore Inc.  News, Ratings, and Charts

EVR – With U.S. Presidential elections now history and a level of political certainty assured for the time being, many companies now feel comfortable taking more calculated risks, such as moving forward with M&A plans. The prevailing low interest rate environment and galloping equity markets are a siren call to potential acquirers looking to pursue M&As. Furthermore, many SPACs are also looking for acquisition targets. We believe such an environment bodes well for major investment banking companies Evercore (EVR) and Lazard (LAZ). Let’s discuss.

Given the fast-paced nationwide vaccination drive, most companies feel the worst for the country regarding the COVID-19 pandemic is now behind have started looking forward. Also, uncertainties related to recent national elections are behind the country too. In the current macroeconomic environment, interest rates are low, equity markets are high, and investors are demanding rewarding growth. Consequently, potential acquirers with strong balance sheets and liquidity are earnestly prowling for the logical strategic targets for long-term value creation.

In fact, M&As have been quite prominent particularly in the technology sector since the middle of last year. The sector saw a 33.6% increase in deal volume and 118.1% increase in deal value in the second half of 2020 versus  the second half of 2019. Moreover, 2020 was a year of the special purpose acquisition company (SPAC), and that trend is expected to continue this year also, with the favorable backdrop encouraging them to seek  potential acquisition targets.

Against this backdrop, we think investment banks Evercore Inc. (EVR) and Lazard Ltd (LAZ) are well-positioned to benefit significantly.

Evercore Inc. (EVR)

EVR is a premier global independent investment banking advisory firm. The company provides advisory services on matters of strategic significance, including mergers and acquisitions (M&A), strategic shareholder advisory, restructurings, and capital structure formulation. It also assists clients in raising capital and delivers equity research, sales and trading execution, in addition to providing wealth and investment management services to high-net-worth  individuals and  institutional investors.

The company  acts as an advisory for various M&A transactions. A couple of its prominent mandates include advising General Electric on its combination of GE Capital Aviation Services with AerCap, and advising Jazz Pharmaceuticals plc on its acquisition of GW Pharmaceuticals plc at approximate valuations of $30 billion and $7.20 billion, respectively.

EVR’s net revenues have increased 40.5% year-over-year to $927.31 million in the fourth quarter, ended December 31, 2020. This primarily reflects its increases in advisory and underwriting fees. Its operating income has risen 108.5% from its  year-ago value to $326.72 million, while its net income has increased 109.5% to $220.38 million over the same period. Its EPS has improved 102.4% to $5.02.

Analysts expect EVR’s revenues to grow 30.1% year-over-year to $565.98 million in the current quarter, ending March 31, 2021. A  consensus EPS estimate of $2.43 for the current quarter represents  a 100.8% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s  EPS estimates in three of the trailing four quarters. The stock has gained 114.6% over the past six months.

EVR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

EVR has an A grade for Growth and Quality and a B for Sentiment. Of the 25 stocks in the A-rated Investment Brokerage industry, the stock is ranked #3.

In total, we rate EVR on eight different levels. Beyond what we stated above, we have also given EVR grades for Momentum, Value and Stability. Get all EVR’s ratings here.

Lazard Ltd (LAZ)

LAZ is a financial advisory and asset management firm that serves corporations, partnerships, institutions, governments and individuals. The firm provides advice on M&As, strategy, restructuring and capital structure, capital raising and corporate finance, as well as asset management services.

Yesterday, LAZ announced that Lazard Fintech Acquisition Corp. I and Lazard Healthcare Acquisition Corp. I have filed with the U.S. SEC relating to  proposed initial public offerings of 25million units at a price of $10.00 per unit. The company is of the opinion that high growth private companies in the financial technology and the healthcare industry present attractive investment opportunities and that  it believed the IPOs could be a big success.

LAZ’s net revenue has increased 21.7% year-over-year to $878.15 million in the fourth quarter, ended December 31, 2020. Its operating income has risen 82.8% from its  year-ago value to $217.50 million, while its EPS has increased 144.8% to $0.67 over the same period. The company’s total assets under management as of February 2021 has increased 2.2% from the previous month to $260.68 billion.

Analysts expect LAZ to report EPS of $0.87 in the current quarter (ending March 31, 2021), up 50% year-over-year. A  consensus revenue estimate of $630.17 million for the current quarter represents  a 12% improvement from its  year-ago value. Also,  the company beat the Street’s  EPS estimates in three out of the trailing four quarters. The stock has gained 31.9% over the past six months.

It is no surprise that LAZ has an overall B rating, which translates to Buy in our POWR Ratings system. LAZ also rated a B in Quality. It is ranked #7 in the same industry.

Click here to see the additional POWR Ratings for LAZ (Stability, Growth, Momentum, Sentiment and Value).

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EVR shares were trading at $128.41 per share on Tuesday afternoon, down $5.05 (-3.78%). Year-to-date, EVR has gained 17.70%, versus a 4.18% rise in the benchmark S&P 500 index during the same period.


About the Author: Rishab Dugar


Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...


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