Back to top

Image: Bigstock

IB to Aid Raymond James (RJF) Q3 Earnings as Trading Normalizes

Read MoreHide Full Article

Raymond James (RJF - Free Report) is slated to announce third-quarter fiscal 2021 (ended Jun 30) results on Jul 28, after market close. Its earnings and revenues are expected to have witnessed solid growth.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. The results benefited from robust Capital Markets segment performance, provision benefits and a rise in assets balance. These were partly offset by higher expenses.
Raymond James has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the surprise being 28.92%, on average.

The Zacks Consensus Estimate for earnings of $2.32 per share for the fiscal third quarter has moved 2.7% upward over the past 30 days. The figure indicates a jump of 88.6% from the year-ago reported number. The consensus estimate for sales of $2.38 billion suggests 29.9% growth.


Major Factors at Play

Trading Revenues: Unlike the prior five quarters, wherein significant market volatility and client activity supported trading revenues, market normalization and reduced volatility are expected to have dampened overall trading business this time around. Thus, Raymond James’ trading revenues are likely to have been subdued in the to-be-reported quarter.

Investment Banking (IB) Fees: Continuing the momentum, which started in the later half of 2020, the IPO market remained active in the to-be-reported quarter. As companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances too. Further, amid near-zero interest rates and the Federal Reserve’s bond purchase program, bond issuance volumes were decent in the quarter. Thus, Raymond James’ underwriting fees is expected to have grown moderately in the to-be-reported quarter.

After an impressive performance over the past few quarters, deal-making continued at a rapid pace in the June quarter as deal volumes and total deal value recorded substantial improvement. This was largely driven by the brighter macroeconomic outlook, proposed tax rate hikes by President Joe Biden, substantially higher cash reserves, lower interest rates and the global roll-out of the COVID-19 vaccines.

In the light of the pandemic, many companies began business restructuring process with an aim to maintain profitability. So, Raymond James’ advisory fees are likely to have been positively impacted.

The consensus estimate of IB fees is pegged at $224 million, suggesting 61.2% growth on a year-over-year basis.

Interest Income: Lending was subdued during the quarter despite re-opening of the economy. This, along with low interest rates, might have adversely impacted Raymond James’ interest income growth.

Interest income is largely accounted in the company’s RJ Bank segment. The Zacks Consensus Estimate for the segment’s revenues of $167 million indicates 6.2% decline from the prior year.

Expenses: Raymond James consistently hires advisors and invests in franchises and thus, overall expenses might have risen in the quarter. Due to a highly competitive environment, costs are expected to have been elevated.

Management Expectations

Management expects assets and fee-based accounts in Private Client Group segment to increase about 7% sequentially.

Based on the strong pipeline and activity levels, the company anticipates fixed income brokerage results to remain robust, mainly in the Depository Client segment. The IB revenues are expected to be approximately $200 million.

In the Asset Management segment, results are expected to be positively impacted by higher financial assets under management, provided the equity markets remain resilient.

The company expects to incur losses of $90 million related to the early extinguishment of senior notes.

Given the strong capital and liquidity position, the company expects to repurchases shares worth at least $50 million.

What the Zacks Model Predicts

Our proven model does not conclusively predict an earnings beat for Raymond James this time around. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Raymond James is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Stocks Worth a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for Prosperity Bancshares, Inc. (PB - Free Report) is +1.52% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report quarterly numbers on Jul 28.

T. Rowe Price Group (TROW - Free Report) is scheduled to release earnings on Jul 29. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.34%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Bancshares (HBAN - Free Report) is slated to report quarterly results on Jul 29. The company currently has an Earnings ESP of +1.42% and a Zacks Rank of 3.

Published in