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Raymond James (RJF) Aided by Strategic Buyouts Amid IB Woes
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Raymond James Financial's (RJF - Free Report) strong balance sheet, inorganic expansion activities and Private Client Group (PCG) segment performances are likely to keep supporting its financials. Yet, mounting operating expenses and the volatile nature of the investment banking (IB) business makes us apprehensive.
RJF has successfully expanded its business in Europe and Canada through several opportunistic deals over the years. In the last fiscal year, the company acquired SumRidge Partners, TriState Capital Holdings and the U.K.-based Charles Stanley Group PLC. In fiscal 2021, it acquired Cebile Capital and a boutique investment bank, Financo. These and the past several buyouts continue to support its financials. Management is looking forward to many such acquisitions to strengthen its PCG and Asset Management segments.
The PCG segment remains one of the best performers for the company. The net revenues for the segment have witnessed a compound annual growth rate (CAGR) of 12.9% over the last four fiscal years ended 2022. The uptrend continued in the first six months of fiscal 2023. We project the PCG segment’s revenues to increase 12.4%, 5.6% and 3.8% in fiscal 2023, 2024 and 2025, respectively.
However, RJF has continued to record a rise in non-interest expenses over the past several years. The metric has witnessed a CAGR of 12.2% over the past four fiscal years ended 2022. Steadily rising compensation costs and higher bank loan loss provisions have been primarily driving expenses. Although non-interest expenses declined marginally in the first six months of fiscal 2023. We project total non-interest expenses to rise 2.2%, 9% and 5.9% in fiscal 2023, 2024 and 2025, respectively.
The current geopolitical and macroeconomic uncertainties are likely to weigh on IB performance. During the six months ended Mar 31, 2023, RJF’s IB revenues witnessed a year-over-year decline of 55%. IB revenues are majorly dependent on the performance of the capital markets, which remain volatile. Thus, the company's over-dependence on IB revenues makes us apprehensive. We project the same to witness a decline of 35% in fiscal 2023.
Further, analysts are bearish on the stock’s earnings prospects. The Zacks Consensus Estimate for Raymond James's current-year earnings has been revised marginally lower over the last 30 days. The company currently carries a Zacks Rank #3 (Hold).
In the past three months, shares of RJF have fallen 12% compared with the industry's 16% decline.
Image Source: Zacks Investment Research
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 60 days. Its shares have gained 6% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 56.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Raymond James (RJF) Aided by Strategic Buyouts Amid IB Woes
Raymond James Financial's (RJF - Free Report) strong balance sheet, inorganic expansion activities and Private Client Group (PCG) segment performances are likely to keep supporting its financials. Yet, mounting operating expenses and the volatile nature of the investment banking (IB) business makes us apprehensive.
RJF has successfully expanded its business in Europe and Canada through several opportunistic deals over the years. In the last fiscal year, the company acquired SumRidge Partners, TriState Capital Holdings and the U.K.-based Charles Stanley Group PLC. In fiscal 2021, it acquired Cebile Capital and a boutique investment bank, Financo. These and the past several buyouts continue to support its financials. Management is looking forward to many such acquisitions to strengthen its PCG and Asset Management segments.
The PCG segment remains one of the best performers for the company. The net revenues for the segment have witnessed a compound annual growth rate (CAGR) of 12.9% over the last four fiscal years ended 2022. The uptrend continued in the first six months of fiscal 2023. We project the PCG segment’s revenues to increase 12.4%, 5.6% and 3.8% in fiscal 2023, 2024 and 2025, respectively.
However, RJF has continued to record a rise in non-interest expenses over the past several years. The metric has witnessed a CAGR of 12.2% over the past four fiscal years ended 2022. Steadily rising compensation costs and higher bank loan loss provisions have been primarily driving expenses. Although non-interest expenses declined marginally in the first six months of fiscal 2023. We project total non-interest expenses to rise 2.2%, 9% and 5.9% in fiscal 2023, 2024 and 2025, respectively.
The current geopolitical and macroeconomic uncertainties are likely to weigh on IB performance. During the six months ended Mar 31, 2023, RJF’s IB revenues witnessed a year-over-year decline of 55%. IB revenues are majorly dependent on the performance of the capital markets, which remain volatile. Thus, the company's over-dependence on IB revenues makes us apprehensive. We project the same to witness a decline of 35% in fiscal 2023.
Further, analysts are bearish on the stock’s earnings prospects. The Zacks Consensus Estimate for Raymond James's current-year earnings has been revised marginally lower over the last 30 days. The company currently carries a Zacks Rank #3 (Hold).
In the past three months, shares of RJF have fallen 12% compared with the industry's 16% decline.
Image Source: Zacks Investment Research
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 60 days. Its shares have gained 6% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 56.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.