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On Apr 2, 2013, we maintained our Neutral recommendation on Raymond James Financial, Inc. (RJF - Analyst Report) based on its inorganic growth prospects and meaningful capital deployment actions. However, escalating expenses and a stringent regulatory landscape remain the major causes of concern for this Zacks Rank #3 (Hold) stock.

Why the Neutral Stance?

Over the past 60 days, there was a marginal upward estimate revision for 2013. Further, estimates for 2014 have slightly improved over the same period.

The Zacks Consensus Estimate for fiscal second quarter 2013 is pegged at 75 cents along with a revenue estimate of $1,114 million. The company delivered better-than-expected fiscal first-quarter earnings on the back of an augmented top line, partially offset by higher expenses.

Further, focus on inorganic growth, history of boosting shareholders’ value through meaningful capital deployment activities along with a stable liquidity position are the positives for Raymond James. The acquisitions of ClariVest Asset Management, LLC, Morgan Keegan and MK Holding from Regions Financial Corporation (RF - Analyst Report) will considerably expand its brokerage and capital markets operations. Going forward, Raymond James is expected to pursue more acquisitions.

However, escalating operating expenses remain a major concern for Raymond James. Increasing compensation costs along with a spurt in acquisitions are expected to further elevate expenses, thus pressurizing the bottom line. In addition, the company’s profitability remains vulnerable to the stringent regulatory landscape and absence of geographical diversification.

Other Stocks to Consider

Other banking stocks that are performing well and are worth considering include Duff & Phelps Corporation and Knight Capital Group, Inc. (KCG - Snapshot Report). While Duff & Phelps holds a Zacks Rank #1 (Strong Buy), Knight Capital carries a Zacks Rank #2 (Buy).

 

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