Eaton Vance (EV) Q2 Earnings: What's In Store For The Stock?

Eaton Vance Corp. (NYSE:EV) is slated to announce second-quarter fiscal 2016 (ended Apr 30) results on Wednesday May 23, before the opening bell.

Last quarter, Eaton Vance’s adjusted earnings lagged the Zacks Consensus Estimate. Results were adversely impacted by a decline in the top line, partly offset by lower operating expenses.

Will Eaton Vance disappoint yet again? Or will it surpass earnings estimates in this quarter? Let’s see how things have shaped up for this announcement.

Factors to Impact Q2 Results

Mounting operating expenses remain a major concern for Eaton Vance. The company’s NextShares initiative will push expenses up during the quarter. Also, the company’s plan to launch new fund products in the U.S. should lead to higher marketing expenses.

Further, compensation expenses will trend upward, led by the hiring of additional staff to support NextShares initiative and building of global equity team in London. The company expects second-quarter fiscal 2016 compensation as a percentage of revenue to be around 37%, given the market headwinds.

Moreover, we believe non-compensation costs are likely to increase due to a rise in distribution expenses and fund-related costs. Hence, overall expenses should trend higher in the quarter.

On the revenue front, Eaton Vance is likely to benefit from the modest turnaround in the global equity markets. Further, assets under management should witness improvement during the quarter.

However, we anticipate lower average effective fee rates to hamper growth in investment advisory and administrative fees. Nonetheless, the top line will likely rebound on a sequential basis.

Eaton Vance’s activities during the quarter were inadequate to win analysts’ confidence. Thus, the Zacks Consensus Estimate declined 4.2% to 46 cents per share over the last 7 days.

Earnings Whispers

Eaton Vance doesn’t have a decent surprise history as indicated from the chart below:

Also, our proven model does not conclusively show that Eaton Vance is likely to beat the Zacks Consensus Estimate in fiscal second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Eaton Vance is +8.70%. This is because the Most Accurate estimate of 50 cents stands above the Zacks Consensus Estimate of 46 cents.

Zacks Rank: Eaton Vance has a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Better-ranked finance stocks include Affiliated Managers Group Inc. (NYSE:AMG) , Western Alliance Bancorporation (NYSE:WAL) and AllianceBernstein Holding L.P. (NYSE:AB) . All these stocks carry a Zacks Rank #2.