NEW YORK (TheStreet) -- Eaton Vance Corporation (NYSE:EV) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its notable return on equity and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including poor profit margins, a generally disappointing performance in the stock itself and unimpressive growth in net income. Highlights from the ratings report include:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Capital Markets industry and the overall market, EATON VANCE CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- EATON VANCE CORP's earnings per share declined by 12.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EATON VANCE CORP increased its bottom line by earning $1.75 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($1.89 versus $1.75).
- Despite the weak revenue results, EV has outperformed against the industry average of 22.9%. Since the same quarter one year prior, revenues slightly dropped by 3.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, EV has underperformed the S&P 500 Index, declining 21.72% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The gross profit margin for EATON VANCE CORP is currently lower than what is desirable, coming in at 32.40%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 17.30% is above that of the industry average.
-- Written by a member of TheStreet Ratings Staff
TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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