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Raymond James (RJF) Rides on Acquisitions, Costs Increase
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Raymond James' (RJF - Free Report) inorganic expansion initiatives, strong balance sheet and global reach continue to support its financials. However, mounting expenses and the volatile nature of the investment banking (IB) business make us apprehensive.
Raymond James has been undertaken several strategic expansion plans over the past few years, driven by its strong liquidity and balance sheet positions. In March, it announced a deal to buy SumRidge Partners, which will boost its fixed income capabilities. In January 2022, the company closed the acquisition of U.K.-based Charles Stanley Group PLC, while in October 2021, it announced a deal to acquire TriState Capital Holdings, Inc. . Supported by a digital lending platform and a solid risk management technology system, TriState Capital provides securities-based loans to high-net-worth borrowers across the United States.
These, along with several prior ones, are expected to keep aiding RJF and help diversify revenues and footprint. Further, the company has expanded into Europe and Canada with the help of such strategic buyouts. Management expects to expand through such opportunistic acquisitions with an aim to further bolster the Private Client Group and Asset Management segments.
Like Raymond James, several other investment banks, including Goldman Sachs (GS - Free Report) , are undertaking strategic acquisitions to diversify revenues. Earlier this week, GS announced an agreement to acquire robo-advisor NextCapital Group, while in August 2021, it entered had signed an agreement to acquire Dutch asset manager NN Investment Partners. These buyouts are expected to strengthen its asset management business. Also, in an effort to augment its retail lending footprint, Goldman has acquired GreenSky, Inc.
Raymond James remains focused on enhancing revenue growth. This Zacks Rank #3 (Hold) company’s total revenues witnessed a CAGR of 11% in the last five fiscal years (2017-2021), primarily driven by a rise in asset management and related administrative fees.
As of Dec 31, 2021, Raymond James had total debt of $3 billion and cash and cash equivalents worth $8.2 billion. Given the sequential improvement in the first-quarter fiscal 2022 debt/total equity ratio, investment-grade ratings and stable outlook from rating agencies and solid earnings strength, there is less likelihood of RJF defaulting on its debt obligations even if the economic situation worsens.
Shares of Raymond James have rallied 11.5% so far this year against a 3.2% decline of the industry it belongs to.
Image Source: Zacks Investment Research
However, rising expenses remain a major challenge for RJF. Non-interest expenses increased, witnessing a CAGR of 10.1% over the last four fiscal years (2018-2021). Regulatory changes, inorganic expansion efforts and a highly competitive environment will likely lead to a further increase in expenses in the quarters ahead.
Further, the volatile nature of Raymond James' IB revenues, which are majorly dependent on the performance of the capital markets, is a matter of concern. Though underwriting and advisory businesses have performed extremely well in recent quarters, these are expected to normalize gradually going forward. RJF's over-dependence on IB revenues makes us apprehensive, as the performance of the business depends on market developments, client volumes and several geopolitical factors, which are subject to changes.
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Raymond James (RJF) Rides on Acquisitions, Costs Increase
Raymond James' (RJF - Free Report) inorganic expansion initiatives, strong balance sheet and global reach continue to support its financials. However, mounting expenses and the volatile nature of the investment banking (IB) business make us apprehensive.
Raymond James has been undertaken several strategic expansion plans over the past few years, driven by its strong liquidity and balance sheet positions. In March, it announced a deal to buy SumRidge Partners, which will boost its fixed income capabilities. In January 2022, the company closed the acquisition of U.K.-based Charles Stanley Group PLC, while in October 2021, it announced a deal to acquire TriState Capital Holdings, Inc. . Supported by a digital lending platform and a solid risk management technology system, TriState Capital provides securities-based loans to high-net-worth borrowers across the United States.
These, along with several prior ones, are expected to keep aiding RJF and help diversify revenues and footprint. Further, the company has expanded into Europe and Canada with the help of such strategic buyouts. Management expects to expand through such opportunistic acquisitions with an aim to further bolster the Private Client Group and Asset Management segments.
Like Raymond James, several other investment banks, including Goldman Sachs (GS - Free Report) , are undertaking strategic acquisitions to diversify revenues. Earlier this week, GS announced an agreement to acquire robo-advisor NextCapital Group, while in August 2021, it entered had signed an agreement to acquire Dutch asset manager NN Investment Partners. These buyouts are expected to strengthen its asset management business. Also, in an effort to augment its retail lending footprint, Goldman has acquired GreenSky, Inc.
Raymond James remains focused on enhancing revenue growth. This Zacks Rank #3 (Hold) company’s total revenues witnessed a CAGR of 11% in the last five fiscal years (2017-2021), primarily driven by a rise in asset management and related administrative fees.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
As of Dec 31, 2021, Raymond James had total debt of $3 billion and cash and cash equivalents worth $8.2 billion. Given the sequential improvement in the first-quarter fiscal 2022 debt/total equity ratio, investment-grade ratings and stable outlook from rating agencies and solid earnings strength, there is less likelihood of RJF defaulting on its debt obligations even if the economic situation worsens.
Shares of Raymond James have rallied 11.5% so far this year against a 3.2% decline of the industry it belongs to.
Image Source: Zacks Investment Research
However, rising expenses remain a major challenge for RJF. Non-interest expenses increased, witnessing a CAGR of 10.1% over the last four fiscal years (2018-2021). Regulatory changes, inorganic expansion efforts and a highly competitive environment will likely lead to a further increase in expenses in the quarters ahead.
Further, the volatile nature of Raymond James' IB revenues, which are majorly dependent on the performance of the capital markets, is a matter of concern. Though underwriting and advisory businesses have performed extremely well in recent quarters, these are expected to normalize gradually going forward. RJF's over-dependence on IB revenues makes us apprehensive, as the performance of the business depends on market developments, client volumes and several geopolitical factors, which are subject to changes.