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Jefferies' (JEF) Ratings Affirmed by Moody's, Outlook Upgraded
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Jefferies Financial Group (JEF - Free Report) and its wholly-owned subsidiaries’ ratings have been affirmed by Moody's Investors Service. The rating outlook for the company has been upgraded to positive from stable.
Of all the ratings that have been affirmed, the company’s senior unsecured debt ratings have been affirmed at Baa3.
Reasons behind Ratings Affirmation and Outlook Upgrade
Per Moody's, the real GDP for most of the G-20 economies will not match the 2019 level any time before 2022. While the G-20 economies are expected to collectively grow 5.3% in 2021 and 4.5% in 2022, following a decline of 3.3% in 2020, growth will likely remain uneven this year.
Moreover, continued fears related to the impact of the coronavirus, especially in countries witnessing repeated outbreaks, remain the main hindrance in the recovery of the economy.
Thus, Jefferies remains at risk for a decline in profitability. If primary and secondary capital markets slowdown or if there are markdowns on underwriting, trading and merchant banking positions, the company’s revenue growth will be hampered.
However, according to Moody's scenario analysis, supported by the increased diversification of Jefferies’ investment banking capabilities along with its reduced concentrations, the company’s balance sheet and capital levels are well-positioned to absorb the above-mentioned downside risk. This is the main reason for Moody’s to affirm Jefferies’ ratings.
However, the outlook upgrade reflects Jefferies’ solid performance even during the pandemic. Notably, over the past eight years, the company has been taking efforts to reduce the size and concentrations within its merchant banking portfolio, and expand and diversify its investment banking capabilities. It has also been able to maintain prudent leverage and a comprehensive set of liquidity management practices.
Further, the company’s CEO and president’s continued efforts for the last 20 years in designing and executing a strategy to skillfully navigate market cycles remains impressive.
What Could Lead to an Upgrade in Ratings?
Jefferies’ ratings can be upgraded if its business model continues to evolve and its earnings become more stable with time by shifting to a more granular risk profile and through the development of a substantial recurring earnings stream of low capital intensity.
When will the Ratings be Downgraded?
Downward rating pressure could emerge if there are losses indicative of risk control failures or there is a relaxation of leverage and liquidity policies. Also, if there is any deviation from liquidity guidelines or there is a material increase in double leverage, the company’s ratings would be downgraded.
Notably, over the past six months, shares of Jefferies have gained 84.5% compared with the industry’s marginal growth.
Since the beginning of 2021, Moody’s has affirmed the ratings for many finance companies, including KeyCorp (KEY - Free Report) , Texas Capital Bancshares (TCBI - Free Report) and Fulton Financial Corporation (FULT - Free Report) . While the outlook for Texas Capital was upgraded to stable from negative, the same for KeyCorp and Fulton Financial were affirmed at stable.
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Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Jefferies' (JEF) Ratings Affirmed by Moody's, Outlook Upgraded
Jefferies Financial Group (JEF - Free Report) and its wholly-owned subsidiaries’ ratings have been affirmed by Moody's Investors Service. The rating outlook for the company has been upgraded to positive from stable.
Of all the ratings that have been affirmed, the company’s senior unsecured debt ratings have been affirmed at Baa3.
Reasons behind Ratings Affirmation and Outlook Upgrade
Per Moody's, the real GDP for most of the G-20 economies will not match the 2019 level any time before 2022. While the G-20 economies are expected to collectively grow 5.3% in 2021 and 4.5% in 2022, following a decline of 3.3% in 2020, growth will likely remain uneven this year.
Moreover, continued fears related to the impact of the coronavirus, especially in countries witnessing repeated outbreaks, remain the main hindrance in the recovery of the economy.
Thus, Jefferies remains at risk for a decline in profitability. If primary and secondary capital markets slowdown or if there are markdowns on underwriting, trading and merchant banking positions, the company’s revenue growth will be hampered.
However, according to Moody's scenario analysis, supported by the increased diversification of Jefferies’ investment banking capabilities along with its reduced concentrations, the company’s balance sheet and capital levels are well-positioned to absorb the above-mentioned downside risk. This is the main reason for Moody’s to affirm Jefferies’ ratings.
However, the outlook upgrade reflects Jefferies’ solid performance even during the pandemic. Notably, over the past eight years, the company has been taking efforts to reduce the size and concentrations within its merchant banking portfolio, and expand and diversify its investment banking capabilities. It has also been able to maintain prudent leverage and a comprehensive set of liquidity management practices.
Further, the company’s CEO and president’s continued efforts for the last 20 years in designing and executing a strategy to skillfully navigate market cycles remains impressive.
What Could Lead to an Upgrade in Ratings?
Jefferies’ ratings can be upgraded if its business model continues to evolve and its earnings become more stable with time by shifting to a more granular risk profile and through the development of a substantial recurring earnings stream of low capital intensity.
When will the Ratings be Downgraded?
Downward rating pressure could emerge if there are losses indicative of risk control failures or there is a relaxation of leverage and liquidity policies. Also, if there is any deviation from liquidity guidelines or there is a material increase in double leverage, the company’s ratings would be downgraded.
Notably, over the past six months, shares of Jefferies have gained 84.5% compared with the industry’s marginal growth.
Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Rating Actions by Moody’s on Other Finance Stocks
Since the beginning of 2021, Moody’s has affirmed the ratings for many finance companies, including KeyCorp (KEY - Free Report) , Texas Capital Bancshares (TCBI - Free Report) and Fulton Financial Corporation (FULT - Free Report) . While the outlook for Texas Capital was upgraded to stable from negative, the same for KeyCorp and Fulton Financial were affirmed at stable.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>