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Analyst Blog

On Oct 7, we upgraded our recommendation on Raymond James Financial, Inc. (RJF - Analyst Report) to Neutral based on its steady balance sheet position, which supports the company’s efficient capital deployment activities.

Why Upgrade?

Raymond James is an attractive pick for yield-seeking investors. It has a track record of continually raising the dividend over the last decade. Moreover, given the acquisition and investment opportunities amid a protracted economic recovery, Raymond James remains focused on its inorganic growth strategy. Going forward, we expect it to pursue more acquisitions that will increase both its market share and revenues.

Further, Raymond James is well positioned from the capital perspective due to its earnings power. We expect the company to continue building capital over the next couple of years in order to meet the heightened regulatory capital requirements.

On Jul 24, Raymond James announced fiscal third-quarter (ended Jun 30) earnings of 65 cents, which was in line with the Zacks Consensus Estimate but a penny above the prior-year quarter figure. Results on a year-over-year basis benefited from a  rise in revenues, partially offset by higher expenses. Growth in AUM as well as assets under administration were the other positives.

However, over the past 60 days, the Zacks Consensus Estimate for fiscal 2013 declined 1.5% to $2.64 per share. Further, for fiscal 2014, the Zacks Consensus Estimate decreased 1.6% to $3.10 over the same period. Therefore, Raymond James currently carries a Zacks Rank #4 (Sell).

Moreover, a rise in operating expenses remains a major concern for Raymond James. As a result of the company’s acquisitions, expenses will likely increase further and consequently exert greater pressure on the bottom line. A still low interest rate environment, regulatory issues and sluggish economic recovery are expected to weigh on the company’s profitability in the near term.

Other Stocks to Consider

Better-performing financial institutions include GAIN Capital Holdings, Inc. (GCAP - Snapshot Report), E*TRADE Financial Corporation (ETFC - Analyst Report) and Interactive Brokers Group, Inc. (IBKR - Analyst Report). While GAIN Capital Holdings carries a Zacks Rank #1 (Strong Buy), both E*TRADE Financial Corporation and Interactive Brokers Group have a Zacks Rank #2 (Buy).

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