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Raymond James (RJF) Q3 Earnings Beat, Revenues Decline Y/Y

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Raymond James’ (RJF - Free Report) third-quarter fiscal 2020 (ended Jun 30) earnings of $1.23 per share comfortably surpassed the Zacks Consensus Estimate of 92 cents. However, on a year-over-year basis, the bottom line decreased 32%.

The results benefited from robust Capital Markets segment performance and a rise in assets balance. Also, the company’s balance sheet position was strong in the quarter. However, higher operating expenses and fall in revenues acted as undermining factors.

Net income was $172 million, down 34% from the prior-year quarter.

Revenues Down, Costs Rise

Net revenues amounted to $1.83 billion, decreasing 5% year over year. The fall was largely due to lower account and service fees, as well as interest income. The top line also lagged the Zacks Consensus Estimate of $1.85 billion.

Segment wise, for the reported quarter, RJ Bank registered a decline of 17% from the prior year in net revenues. Both Private Client Group and Asset Management recorded an 8% fall in revenues from the prior-year quarter. Further, Others recorded negative net revenues of $20 million. However, Capital Markets’ top line jumped 29% from the year-ago quarter.

Non-interest expenses were up 3% year over year to $1.63 billion. The increase was due to higher communications and information processing, professional fees, as well as bank loan loss provision.

As of Jun 30, 2020, client assets under administration were $876.9 billion, up 6% from the end of the prior-year quarter. Financial assets under management were $145.4 billion, up 2% from the prior-year quarter.

Strong Balance Sheet & Capital Ratios

As of Jun 30, 2020, Raymond James reported total assets of $44.7 billion, down 10% sequentially. Total equity increased 2% from the first quarter to $7 billion.

Book value per share was $50.84, up from $46.54 as of Jun 30, 2019.

As of Jun 30, 2020, total capital ratio was 26%, up from 25.2% as of the Jun 30, 2019 level. Tier 1 capital ratio was 24.8% compared with 24.2% as of June 2019-end.

Return on equity (annualized basis) was 10.0% at the end of the reported quarter compared with 16.1% in the comparable prior-year period.

Our Viewpoint

Continuously mounting operating expenses and lower interest rates are expected to hurt Raymond James’ bottom line in the near term. However, its global diversification efforts are expected to keep driving top-line growth.

Currently, the company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokerage Firms

Charles Schwab’s (SCHW - Free Report) second-quarter 2020 adjusted earnings of 54 cents per share lagged the Zacks Consensus Estimate of 55 cents. Also, the bottom line decreased 19% from the prior-year quarter.

Interactive Brokers Group’s (IBKR - Free Report) second-quarter 2020 adjusted earnings per share of 57 cents surpassed the Zacks Consensus Estimate of 30 cents. The figure reflects no change from the prior-year earnings.

Evercore (EVR - Free Report) reported second-quarter 2020 adjusted earnings per share of $1.53, which beat the Zacks Consensus Estimate of $1.27. However, the reported earnings were down 26.1% from the prior-year quarter’s $2.07 per share.

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