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Raymond James (RJF) Ratings Upgraded By Moody's, Outlook Stable

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Raymond JamesFinancial, Inc.’s (RJF - Free Report) senior unsecured debt and issuer ratings have been upgraded to A3 from Baa1 by Moody’s Investors Service, a division of Moody’s Corporation (MCO - Free Report) . The rating outlook for the company remained unchanged at stable post conclusion of the upgrade review that began in November 2021.

Reasons for Ratings Upgrade

Per Moody’s, Raymond James reflects impressive and flexible financial performance pertaining to its cost structure, robust financial policies and diversified business mix.

Further, the company has maintained its debt leverage despite various acquisitions in the past and chooses its target wisely. This reflects its solid capital structure and liquidity position.

RJF’s resilience has helped it to continue performing solidly despite the coronavirus pandemic, which led to increase in provisions in fiscal 2020. This, along with lower interest rates, was a headwind. Nevertheless, in fiscal 2021, rise in advisor numbers, solid client engagement, higher market valuations and strong capital markets recovery led to one of the strongest results for RJF in a while.

Moody’s provides a stable outlook for Raymond James based on its strong organic growth and large scale that will help face any downturns, while believing that the company’s fiscal 2021 results are not sustainable.

Further, the rating agency believes that any increase in short-term interest rates in 2022 is expected to aid Raymond James’ net interest income. This can help offset potential reduced capital markets or asset management revenues. The company’s diversified revenue streams and strong expense control  can also help sustain the low volatility in its earnings and retain solid cash flow.

Per Moody’s review of the company’s conservative financial policies and corporate governance, any increase in debt leverage to below 2.0x on a Moody's adjusted basis is limited.

When Can the Ratings be Further Upgraded?

The rating of RJF is subject to upgrade if pre-tax earnings exceed $2.5 billion andpre-tax margin exceeds 21% (35% after netting commissions & advisory revenues paid to independent contractor advisors) and is sustainable. Further, an increase in scale is expected to lower any future debt issuance and can lead to the firm's debt leverage going above 1.5x.

Which Factors Can Lead to a Downgrade in Ratings?

The rating of Raymond James is subject to downgrade if it increases its dividends, stock repurchases or goes forward with a large debt-funded acquisition aggressively. This can lead to its debt leverage going above 2.0x or a retained cash flow ratio going below 20%. Further, it the company’s profitability decreases considerably or the earnings volatility increases due to economic downturn, the ratings can be downgraded. It might suffer from material operational failure due to poor compliance or risk management oversight.

Price Performance & Zacks Rank

Raymond James’ shares have surged 53.7% in the past year compared with 26.1% growth of the industry.

Zacks Investment ResearchImage Source: Zacks Investment Research

Currently, Raymond James’ sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rating Action by Moody’s on Other Firm

In December, Moody’s affirmed the ratings of Associated Banc-Corp (ASB - Free Report) and its banking subsidiary Associated Bank, N.A. Their outlook was re-affirmed at negative by the rating agency.

Associated Banc-Corp’s standalone BCA was affirmed at a3, while its issuer rating for long-term senior unsecured notes was affirmed at Baa1.


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