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What's in the Offing for Raymond James (RJF) in Q3 Earnings?

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Raymond James Financial, Inc. (RJF - Free Report) is scheduled to announce third-quarter fiscal 2017 (ended Jun 30) results tomorrow, after the market closes. Its revenues and earnings are expected to grow year over year.

Improved investment banking and trading income drove the company’s fiscal second quarter earnings, which beat the Zacks Consensus Estimate. This was partially offset by elevated expenses.

Analysts seem to be happy with the company’s business activities in the just concluded quarter. Hence, the Zacks Consensus Estimate moved 4.2% upward, over the last 30 days. Also, the stock has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 14.4%.

Further, the company’s price performance has been decent as well. Its shares have jumped 21% so far this year compared with the industry’s rise of 0.5%.

Before we dig deeper into the factors that are likely to influence Raymond James’ earnings, let’s check what our quantitative model predicts.

Earnings Whispers

Our proven model does not conclusively show that Raymond James is likely to beat earnings this quarter. That’s because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as elaborated below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Raymond James is -0.81%. This is because the Most Accurate estimate of $1.23 is below the Zacks Consensus Estimate stand at $1.24.

Zacks Rank: Raymond James has a Zacks Rank #2, which increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings surprise.

Factors to Impact Q3 Results

Underwriting fees to rise marginally: Driven by an improving market conditions, the quarter witnessed an increase in equity issuance while debt issuance was hit by higher interest rates. Per the data compiled by Thomson Reuters, equity market activities led to over 22% increase in equity underwriting fees.

However, the data indicates that global fees related to bond activity roughly totaled $6.5 billion during the quarter, down more than 16% year over year. So, Raymond James is expected to record a decline in debt underwriting fees during the quarter.

All in all, total underwriting fees is expected to witness a slight rise on the basis of improved equity markets.

Loan growth in RJ Bank to support revenues: With stabilizing economy, a rise in demand for loans and improvement in rates, RJ Bank segment is expected to record a rise in interest income.

Trading income to fall due to low volatility: For the major part of the quarter, trading activities remained sluggish, largely due to low volatility in both bond and equity markets. While the markets witnessed a modest increase in volatility at the end of quarter, it is not likely to be enough for Raymond James to record any considerable growth in trading revenues.

Advisory fee revenues projected to decline: Global M&A activity remained lackluster. Per the Thomson Reuters data, the total deal value of announced M&As across the globe declined during the quarter. Thus, total fees earned through deal making are likely to decline as well. Likewise, Raymond James is expected record a fall in advisory fees during the quarter.

Expenses to increase: Raymond James is expected to incur integration costs during the quarter as it continues to grow inorganically. In April, it signed a deal to acquire Scout Investments and its Reams Asset Management division. Also, as the company persistently hires advisors and invests in franchises, overall expenses are expected to increase.

Stocks to Consider

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 in their upcoming releases:

Hilltop Holdings Inc. (HTH - Free Report) is slated to release results on Jul 27. It has an Earnings ESP of +2.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Franklin Resources, Inc. (BEN - Free Report) has an Earnings ESP of +1.37% and a Zacks Rank #2. It is slated to report June quarter-end results on Jul 28.

OM Asset Management PLC has an Earnings ESP of +2.63% and a Zacks Rank #2. The company is expected to release results on Aug 3.

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