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Raymond James (RJF) Down 2.6% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Raymond James (RJF - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Raymond James due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Raymond James’ Q3 Earnings Miss on Dismal Trading

Raymond James has announced third-quarter fiscal 2018 (ended Jun 30) earnings per share of $1.55, which lagged the Zacks Consensus Estimate of $1.64. On a year-over-year basis, the bottom line increased 23%.

Results benefited from an improvement in net revenues, reflecting solid investment banking performance and higher interest rates. Also, growth in assets acted as a tailwind. However, higher expenses and dismal trading performance were on the downside.

Net income for the quarter totaled $232.3 million, up 25% from the year-ago quarter.

Revenues Improve, Costs Rise

Net revenues for the reported quarter amounted to $1.84 billion, rising 13% year over year. The rise was attributable to an increase in almost all the revenue components except net trading profits. Further, the reported figure topped the Zacks Consensus Estimate of $1.82 billion.

Segment wise, in the reported quarter, RJ Bank registered an increase of 25% in net revenues. Further, Asset Management and Private Client Group depicted top-line improvement of 34% and 13%, respectively. However, Capital Markets witnessed a decline of 7% in net revenues, while Others reported negative revenues against positive revenues in the prior-year quarter.

Non-interest expenses increased 13% year over year to $1.52 billion. The rise was largely due to an increase in all cost components, except for the absence of acquisition-related costs and lower bank loan loss provision.

As of Jun 30, 2018, client assets under administration increased 14% on a year-over-year basis to $754.3 billion, while financial assets under management surged 49% to $135.5 billion.

Balance Sheet Strong, Capital Ratios Improve

As of Jun 30, 2018, Raymond James reported total assets of $36.4 billion, relatively stable sequentially. Total equity rose 5% from the last reported quarter to $6.2 billion.

Book value per share was $42.24, up from $37.46 as of Jun 30, 2017.

As of Jun 30, 2018, total capital ratio was 24.9%, increasing from 23.3% as of Jun 30, 2017. Also, Tier 1 capital ratio was 24.0% compared with 22.3% in the year-ago period.

Also, return on equity came in at 15.4% at the end of the reported quarter, up from 13.8% a year ago.

Fiscal 2018 Guidance

Management projects net interest margin to be 3.10-3.20%.

Management expects the acquisition of Scout Investments and its Reams Asset Management division to generate nearly $18 million of revenues per quarter.

The company expects pre-tax margin to reach over 18%. Specifically, management targets pre-tax margin for PCG and Capital Markets segments to be 12.5% and 10%, respectively.

Moreover, compensation ratio is anticipated to be less than 66.5%.

Management expects communication and information processing costs to be in the high $80 million to $90 million range. Business development expenses are expected to be at the higher end of the $45-$50 million range.

Raymond James targets to achieve ROE in the range of 16-17%.

Management projects fiscal fourth-quarter blended federal statutory tax rate to be 27-27.5%. In fiscal 2019, tax rate is expected to be 24-25%.

How Have Estimates Been Moving Since Then?

Fresh estimate followed an upward path over the past two months.

VGM Scores

At this time, Raymond James has an average Growth Score of C, however its Momentum is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.

Outlook

Raymond James has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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