Goldman Sachs Adds Evercore (EVR) to Conviction Buy List Amid Growing M&A Cycle in 2021, Houlihan Lokey (HLI) Downgraded

March 19, 2021 10:01 AM EDT
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Price: $131.66 -2.52%

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    15 Buy, 3 Hold, 0 Sell

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Goldman Sachs analyst Richard Ramsden added Evercore (NYSE: EVR) to the company’s "Conviction List" amid positive risk/reward.

The analyst believes the market is continuing to underestimate EVR’s growth potential, due to:

1. Upside from EVR market-leading position from areas we expect to drive the current M&A cycle (US, large cap and tech in particular).

2. The growing contribution from non M&A advisory products, which we now estimate represent 40%+ of total advisory which we believe will continue to both reduce revenue volatility but also add further growth avenues.

3. Upside optionality from the robust ECM backdrop, as it benefits from the growing fee pool from SPACs (Evercore has the leading market share in SPACs amongst independents).

4. We expect EVR to be able to retain its 300bps margin premium vs. peers, as it scales its banker base and continues to increase productivity.

Moreover, Ramsden believes there’s potential for an upside surprise as the bank predicts stronger-than-expected earnings, in addition to a robust cash position. He rates EVR with a “Buy” rating and a price target of $162.00 per share.

Oppositely, Ramsden has downgraded Houlihan Lokey (NYSE: HLI) to “Neutral” from “Buy” with a price target of $73.00 per share. The downgrade comes mostly on the back of the outperformance in HLI stock, which has appreciated 45% since April 2019, 7pp more than the S&P and 12pp more than the peer group.

“We believe that near term valuation on HLI appears less attractive than certain peers, in light of the company’s exposure to restructuring, and could result in its 3x P/E premium versus peers narrowing. In periods when restructuring slows, which we expect to occur in the near term, HLI has seen slower revenue growth to peers and it has traded up to a 4x P/E discount to peers,” Ramsden wrote in a note.

On the fundamental side, Goldman Sachs still likes HLI as their best-in-class sponsors business and growing HL Finance business are likely to continue yielding strong, synergistic longer term growth.

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