UBS Analyst Negative on Evercore (EVR) and Moelis & Company (MC) - Downgrades to Sell

September 23, 2022 1:07 PM EDT
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Price: $111.56 -1.76%

Rating Summary:
    10 Buy, 7 Hold, 1 Sell

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    Up: 12 | Down: 17 | New: 16
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In separate notes Friday, UBS analyst Brennan Hawken downgraded shares of Evercore (NYSE: EVR) and Moelis & Company (NYSE: MC) to Sell.

The analyst lowered the price target of Evercore to $85 from $99 and Moelis & Company to $35 from $43.

In the Evercore note, Hawken explained that M&A sluggishness weighs on the company's pipeline while "belt tightening brings unfamiliar terrain."

"We are downgrading EVR from Neutral to Sell as their shrinking deal pipeline increases the risk of inflexibility in their expense. Based on our analysis, consensus is not capturing the impact of fixed comp expense, with consensus comp ratios for EVR in 2H22 of 61% compared to our estimates of 63%. Negative operating leverage is likely to persist given that EVR's public revenue pipeline is down 40% Y/Y, compared to a 29% average decline across the boutiques," the analyst wrote.

He added: "Despite strategic investments in diversifying their business model away from core M&A, EVR's revenue profile is still heavily weighted towards advisory fees (80% of total revenue), and it is hard to have confidence in other revenue streams given limited visibility."

Meanwhile, Hawken stated that Moelis & Company is between a rock and a hard place, with weak earnings potentially limiting capital return and risk dilution.

"We are downgrading MC from Neutral to Sell, as the degree of fixed compensation expense (i.e., deferred comp + salaries) is likely to add considerable upward pressure to the company's adjusted comp ratio (our forecasts call for 2H22 ratio of 65% vs 59% in 1H22)," explained Hawken. "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."

Evercore and Moelis shares are down over 6% at the time of writing.

By Sam Boughedda

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