BofA-Merrill: Dump This Finance Stock Before Earnings

Eaton Vance earnings are due tomorrow morning

May 20, 2019 at 11:15 AM
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BofA-Merrill Lynch double-downgraded Eaton Vance Corp (NYSE:EV) to "underperform" from "buy," and slashed its price target to $37 from $45. The analyst in coverage said the lowered outlook comes amid slowing flow trends and expectations for margin pressures for the investment firm.

Jefferies also chimed in on EV stock over the weekend, cutting its price target by $1 to $40, while J.P. Morgan Securities last night upped its target price to $40 from $39. Overall, most analysts are skeptical of Eaton Vance, with five of six maintaining a "hold" or worse recommendation at last Friday's close.

This skepticism is seen elsewhere on Wall Street. Short interest has more than tripled since mid-October, with 5.8 million EV shares currently dedicated to these bearish bets. While this represents a low 5.5% of the stock's available float, it would still take shorts a notably 7.4 days to cover, at the average pace of trading.

Looking at the charts, EV stock bounced off its late-December lows near $32, but have struggled to surmount the $42 level throughout 2019 -- a roughly 50% Fibonacci retracement of its fourth-quarter sell-off. The equity most recently retreated from here in late April, and has since dropped 10.4% to trade at $37.29.

More losses could be ahead, if history is any guide. Eaton Vance is expected to report fiscal second-quarter earnings ahead of the open tomorrow, May 21. EV stock has closed lower in the session subsequent to earnings in six of the past eight quarters, averaging a one-day loss of 1.9%.

 eaton vance stock daily price chart on may 20


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