Getting high quality at a low price, always makes me happy. Eaton Vance (EV) looks to be in this category, after hitting a new 52-week low last Friday. EV shares touched $26.26 briefly intraday before rebounding slightly to close at $26.70.
These same shares were as high as $36.08, as recently as May 3. Was there bad news to justify this 26% drop? Fully diluted nine-month EPS were $0.99 versus fiscal year 2009's $0.68. It is now expected that the full fiscal year 2010 (ends October 31, 2010) will come in at $1.38 versus $1.08, and that fiscal year 2011 could see $1.85 - a further jump of about 34% to what would be an all-time record level.
Source: AOL Finance
EV has been a steady grower over the years with occasional stumbles due to general market action. Eleven of the past fourteen fiscal years have shown improved year-over-year EPS, with split-adjusted earnings growing from FY 1995's $0.18, to this year's expected $1.38 per share. Revenues per share have similarly surged from 1995's $1.13 to an estimated $9.58 in 2010.
Assets under management, the key driver of profitability, hit $173.3 billion as of July 31, up from $143.7 a year earlier. That includes about $20 billion held in various closed-end funds. EV is the third largest in that space, trailing only BlackRock (BLK) and Nuveen.
2010 marked the 13th consecutive year of dividend increases. The present $0.16 quarterly rate offers a well-covered 2.4% current yield.
Zacks sees fiscal year 2011 coming in at $1.85, while Standard & Poor's now estimates $2.02. Even the lower number puts EV's forward multiple at less than 14.5x - well below their 21x 10-year median P/E.
What's a reasonable 12-month target price? Morningstar rates EV as 4-Stars (out of 5) and just raised their 'fair value' estimate to $33.00 S&P carries a 12-month goal of $30.00. EV shares have actually touched annual highs of $31.30 and up, during each of the years 2006 - 2010 YTD.
Amazingly, in today's fearful environment, you can get excellent put premiums that would allow for very nice upside, while providing some downside protection, even from the lows set last week.
Trades: Sell to open 3 EV February 22.5 puts at $1.35, sell to open 3 EV February 25 puts at $2.20 and sell to open 3 EV February 30 puts at $4.80.
At the time of publication, Paul Price held no positions in the stocks or issues mentioned.
Dr. Price joined Merrill Lynch in 1987 and over the next 13 years worked with A.G. Edwards, Wheat First and Ferris, Baker Watts. Dr. Price enjoyed enough success to retire in October 2000, but he continues to write and give investment seminars.
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