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Weak Investment Banking to Hurt Raymond James (RJF) Q4 Earnings
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Raymond James (RJF - Free Report) is slated to announce fourth-quarter and fiscal 2022 (ended Sep 30) results on Oct 25, after market close. While quarterly earnings are expected to have witnessed a fall on a year-over-year basis, revenues are likely to have improved.
In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were adversely impacted by a rise in expenses, disappointing investment banking (IB) performance and higher bank loss provision for credit losses. Yet, higher interest income, a rise in loan demand and past acquisitions acted as tailwinds.
Raymond James has a decent earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the surprise being 8.14%, on average.
Raymond James Financial, Inc. Price and EPS Surprise
The Zacks Consensus Estimate for the company’s fiscal fourth-quarter earnings is pegged at $2.00, which has moved 1.5% lower over the past seven days. The figure indicates a decline of 2.9% from the year-ago quarter’s reported number.
The consensus estimate for sales of $2.73 billion suggests 1.2% year-over-year growth.
Factors to Note for Q4
Investment Banking Fees: After an extraordinary performance for almost two years, global deal-making activities have come to almost a halt since the start of 2022, with the September quarter being no different. Raging inflation, equity market rout (with all the major indexes in the bear market) and fears of a recession veered companies away from business expansion plans through acquisitions. Thus, both deal volume and total deal value crashed in the quarter under review, because of which Raymond James’ advisory fees are likely to have been hurt.
Given the above-mentioned concerns, the equity market performance was disappointing in the to-be-reported quarter and thus, IPOs and follow-up equity issuances dried up. Likewise, bond issuance volumes are likely to have been muted. Thus, RJF’s underwriting fees are expected to have been negatively impacted in the quarter.
The consensus estimate for IB fees is pegged at $237 million, suggesting a 34.9% plunge from the previous-year quarter’s reported figure.
Trading Revenues: After witnessing a gradual normalization in the second half of last year, trading activities rebounded from March 2022, with the trend continuing in the September-ended quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, 40-year-high inflation numbers and rising interest rates worldwide resulted in heightened client activities and increased trading volumes.
These factors led to higher volatility in the equity markets and other asset classes, including bonds, commodities and foreign exchange. Thus, Raymond James’ trading revenues are likely to have been decent in the to-be-reported quarter.
Interest Income: The overall loan demand was quite impressive in the quarter under review. Thus, driven by loan growth, along with higher interest rates, Raymond James’ interest income is expected to have improved.
Expenses: Raymond James consistently hires advisors and invests in franchises. Thus, overall expenses are expected to have risen in the quarter. Also, due to a highly competitive environment, costs might have been elevated.
Management Expectations
The Private Client Group (PCG) segment results for the fiscal fourth fiscal quarter are likely to be adversely impacted by the expected 11% sequential decline in asset management and related administrative fees.
For the fiscal fourth quarter, IB revenues are expected to remain on par with the previous-quarter level. This will, thus, lead to fiscal full-year 2022 IB revenues touching the same level as fiscal 2021.
Net interest margin for the fiscal fourth quarter is expected to be 2.7%, reflecting a 30 basis points increase from the average 2.4% reported in the fiscal third quarter.
Expenses are expected to keep rising in fiscal 2022 as travel, recognition trips and conferences continue to resume, and there is an increase in investments in technology and people.
Driven by the company’s current revenue mix, forward rate curve over the next 12 months, the impact of the TriState deal and the successful implementation of the expense initiative, the company targets a compensation ratio of less than 66%.
The company expects to record bank loan loss provisions for credit losses associated with net loan growth in fiscal 2022.
Key Development in Q4
In July, Raymond James completed the acquisition of SumRidge Partners, LLC. The financial details of the transaction, announced in March, were not disclosed.
Jersey City, NJ-based SumRidge is a technology-based “fixed income market maker” specializing in investment-grade and high-yield corporate bonds, municipal bonds and institutional-preferred securities. Its integration with Raymond James’ Fixed Income Capital Markets will complement “core client-facing business” and add sophisticated trading technologies and risk management tools.
Co-founded by Tom O’Brien and Kevin Morano in 2010, SumRidge's current employees will continue to work under them. Both O’Brien and Morano will become senior managing directors.
What the Zacks Model Predicts
According to our proven model, the chances of Raymond James beating the Zacks Consensus Estimate this time are low. This is because it doesn’t the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
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 #4 (Sell).
Stocks Worth a Look
A couple of other 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 Trustmark Corporation (TRMK - Free Report) is +5.25% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 25.
Over the past 30 days, the Zacks Consensus Estimate for TRMK’s quarterly earnings has been revised 1.5% lower.
Image: Bigstock
Weak Investment Banking to Hurt Raymond James (RJF) Q4 Earnings
Raymond James (RJF - Free Report) is slated to announce fourth-quarter and fiscal 2022 (ended Sep 30) results on Oct 25, after market close. While quarterly earnings are expected to have witnessed a fall on a year-over-year basis, revenues are likely to have improved.
In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were adversely impacted by a rise in expenses, disappointing investment banking (IB) performance and higher bank loss provision for credit losses. Yet, higher interest income, a rise in loan demand and past acquisitions acted as tailwinds.
Raymond James has a decent earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the surprise being 8.14%, on average.
Raymond James Financial, Inc. Price and EPS Surprise
Raymond James Financial, Inc. price-eps-surprise | Raymond James Financial, Inc. Quote
The Zacks Consensus Estimate for the company’s fiscal fourth-quarter earnings is pegged at $2.00, which has moved 1.5% lower over the past seven days. The figure indicates a decline of 2.9% from the year-ago quarter’s reported number.
The consensus estimate for sales of $2.73 billion suggests 1.2% year-over-year growth.
Factors to Note for Q4
Investment Banking Fees: After an extraordinary performance for almost two years, global deal-making activities have come to almost a halt since the start of 2022, with the September quarter being no different. Raging inflation, equity market rout (with all the major indexes in the bear market) and fears of a recession veered companies away from business expansion plans through acquisitions. Thus, both deal volume and total deal value crashed in the quarter under review, because of which Raymond James’ advisory fees are likely to have been hurt.
Given the above-mentioned concerns, the equity market performance was disappointing in the to-be-reported quarter and thus, IPOs and follow-up equity issuances dried up. Likewise, bond issuance volumes are likely to have been muted. Thus, RJF’s underwriting fees are expected to have been negatively impacted in the quarter.
The consensus estimate for IB fees is pegged at $237 million, suggesting a 34.9% plunge from the previous-year quarter’s reported figure.
Trading Revenues: After witnessing a gradual normalization in the second half of last year, trading activities rebounded from March 2022, with the trend continuing in the September-ended quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, 40-year-high inflation numbers and rising interest rates worldwide resulted in heightened client activities and increased trading volumes.
These factors led to higher volatility in the equity markets and other asset classes, including bonds, commodities and foreign exchange. Thus, Raymond James’ trading revenues are likely to have been decent in the to-be-reported quarter.
Interest Income: The overall loan demand was quite impressive in the quarter under review. Thus, driven by loan growth, along with higher interest rates, Raymond James’ interest income is expected to have improved.
Expenses: Raymond James consistently hires advisors and invests in franchises. Thus, overall expenses are expected to have risen in the quarter. Also, due to a highly competitive environment, costs might have been elevated.
Management Expectations
The Private Client Group (PCG) segment results for the fiscal fourth fiscal quarter are likely to be adversely impacted by the expected 11% sequential decline in asset management and related administrative fees.
For the fiscal fourth quarter, IB revenues are expected to remain on par with the previous-quarter level. This will, thus, lead to fiscal full-year 2022 IB revenues touching the same level as fiscal 2021.
Net interest margin for the fiscal fourth quarter is expected to be 2.7%, reflecting a 30 basis points increase from the average 2.4% reported in the fiscal third quarter.
Expenses are expected to keep rising in fiscal 2022 as travel, recognition trips and conferences continue to resume, and there is an increase in investments in technology and people.
Driven by the company’s current revenue mix, forward rate curve over the next 12 months, the impact of the TriState deal and the successful implementation of the expense initiative, the company targets a compensation ratio of less than 66%.
The company expects to record bank loan loss provisions for credit losses associated with net loan growth in fiscal 2022.
Key Development in Q4
In July, Raymond James completed the acquisition of SumRidge Partners, LLC. The financial details of the transaction, announced in March, were not disclosed.
Jersey City, NJ-based SumRidge is a technology-based “fixed income market maker” specializing in investment-grade and high-yield corporate bonds, municipal bonds and institutional-preferred securities. Its integration with Raymond James’ Fixed Income Capital Markets will complement “core client-facing business” and add sophisticated trading technologies and risk management tools.
Co-founded by Tom O’Brien and Kevin Morano in 2010, SumRidge's current employees will continue to work under them. Both O’Brien and Morano will become senior managing directors.
What the Zacks Model Predicts
According to our proven model, the chances of Raymond James beating the Zacks Consensus Estimate this time are low. This is because it doesn’t the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
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 #4 (Sell).
Stocks Worth a Look
A couple of other 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 Trustmark Corporation (TRMK - Free Report) is +5.25% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 25.
Over the past 30 days, the Zacks Consensus Estimate for TRMK’s quarterly earnings has been revised 1.5% lower.
Ameriprise Financial, Inc. (AMP - Free Report) is also scheduled to release third-quarter 2022 earnings on Oct 25. AMP, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.42%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMP’s quarterly earnings estimates have moved marginally lower over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.