After experiencing a slowdown in 2023, M&A activity is on the comeback trail, and that is good news for advisory firms. One of the stocks poised to benefit from the positive momentum is Moelis & Co (NYSE: MC), a global investment bank that advises companies in the capital markets led by Ken Moelis. Founded in 2007 on the cusp of the Great Financial Crisis, Moelis emerged stronger and listed on the Big Board in 2014. 

With a 4.2% annual dividend yield, Moelis pays a quarterly cash distribution of $0.60 per share, for an annual rate of $2.40. If Moelis isn’t on your radar for passive income, you might want to take another look. The firm has been making steady payouts to investors for the past decade without interruption, even throughout the pandemic years and economic slowdown. Also, now that the M&A market is demonstrating green shoots of recovery after a tough 2023, Moelis could be in a better position to raise its dividend sooner rather than later. 

Moelis’ strategy involves returning excess cash to shareholders in the form of dividends and share buybacks. Since its IPO in 2024, Moelis stock has returned $2.6 billion in capital and delivered total shareholder return of 366% assuming the reinvestment of dividends. Something that should be reassuring to investors is that the firm carries neither debt nor goodwill on its balance sheet and holds cash and liquid investments of roughly $125 million. In addition to its regular distributions, which included an increase in 2021, Moelis has a history of issuing special dividends. 

Balance Sheet

In Q1, Moelis started to experience the benefits of improving capital market conditions. The firm reported Q1 EPS of $0.22 per share, double Zack’s analyst estimate of $0.11 and exceeding year-ago results. Revenue of $217.5 million reflected a 17% jump year-over-year fueled by fees from restructuring activity. The company said its “pipeline continues to strengthen” amid an M&A market recovery.

Moelis is growing and added four investment bankers in Q1 as a vote of confidence in the deal environment from which it collects its fees. A year ago, the firm revealed a significant expansion of its tech banking team in anticipation of more deal activity in that sector. Tech deals often involve private equity firms, which have capital but have been on the sidelines until market conditions ease. Ken Moelis says there’s a backlog of deals as well as “connectivity to a large fee pool client base” for when the spigot eventually gets turned on. 

Stock Price 

Given its market cap of $3.5 billion, major Wall Street banks cover Moelis stock, including Goldman Sachs. Goldman recently upgraded Moelis stock to a “hold” rating with a price target of $57 attached, reflecting 16.3% upside potential. JPMorgan similarly rates the stock a “hold” with a price target of $54, which is closer to Wall Street’s average forecast of $54.50. Moelis stock price is hovering just below $50 per share compared with a 52-week high of $58. CEO Ken Moelis sold 79,000 shares of MC stock in Q1 when the stock was trading at $54.11.  

While analysts might be slanting neutral on Moelis stock now, it appears to be more a function of the capital markets environment than anything company-specific. Observing the results of other investment banks will give investors an indication of when Wall Street is starting to warm up to those names again. One encouraging sign was Goldman Sachs’ impressive Q1 results including robust revenue that was fueled in part by investment banking activity. This performance bodes well for boutique investment banking stocks like Moelis.

Moelis Matters 

Since the firm was founded, Moelis has advised clients on $2.8 trillion in deal volume across 1,480 transactions. Many of the firms clients are high-profile names, and it made the top-three rankings for Dealogic’s top M&A boutique last year. Many companies are in danger of defaulting on corporate debt given the persistently high interest rate environment. Moelis has expertise in areas like recapitalizations and restructurings, all of which are in demand in the current uncertain economic environment.

Some of the clients Moelis has advised on restructurings in the past include high-profile companies like Hertz and digital asset lender BlockFi as well as Ambac Financial Group and the restructuring of Puerto Rico’s municipal debt. Other deals have included Carvana for an equity raise and World Wrestling Entertainment’s all-stock combination with Endeavor Group.

Macro Outlook

If Moelis’ business is so closely tied to the M&A markets, investors should be encouraged by the turnaround in deal flow of late. One of the points Ken Moelis made on the company’s Q1 earnings call was “you don’t need a rate cut to trigger M&A.” This is good news for the firm, as uncertainty around monetary policy continues to linger. But even if companies decide to wait on the sidelines a little longer before putting assets up for sale, there are other pockets of strength in this environment – restructurings and what he described as “rescue financings.” Given Moelis’ strong balance sheet and discipline in unlocking shareholder value, Moelis stock could be a gem for passive income investors looking to strengthen their portfolios. 

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