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Why Is Raymond James (RJF) Up 16.4% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for Raymond James Financial, Inc. (RJF - Free Report) . Shares have added about 16.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is RJF due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Raymond James Q2 Earnings In Line, Revenues Up Y/Y

Raymond James announced second-quarter fiscal 2018 (ended Mar 31) earnings per share of $1.63, which was in line with the Zacks Consensus Estimate. On a year-over-year basis, the bottom line jumped 27%.

Results were primarily driven by an increase in net revenues, reflecting solid investment banking strength. Also, growth in assets acted as a tailwind. However, higher expenses were on the downside.
 
Net income for the quarter totaled $242.8 million, up 29% from the year-ago quarter.

Revenues Improve, Costs Rise

Net revenues for the quarter amounted to $1.81 billion, rising 16% year over year. The rise was attributable to an increase in almost all the revenue components except net trading profits. Further, the reported figure marginally topped the Zacks Consensus Estimate.

Segment wise, in the reported quarter, RJ Bank registered an increase of 26% in net revenues. Further, Asset Management and Private Client Group depicted top-line improvement of 40% and 17%, respectively. However, Capital Markets witnessed a decline of 10% in net revenues, while Others reported improved revenues against negative revenues in the prior-year quarter.

Non-interest expenses increased 6% year over year to $1.48 billion. The rise was largely due to increase in all cost components, except for the absence of acquisition-related costs and losses on extinguishment of debt as well as lower other expenses and bank loan loss provision.

As of Mar 31, 2018, client assets under administration increased 14% on a year-over-year basis to $729.5 billion, while financial assets under management surged 55% to $132.3 billion.

Strong Balance Sheet, Capital Ratios Improve

As of Mar 31, 2018, Raymond James reported total assets of $36 billion, relatively stable sequentially. Total equity rose 4% on a sequential basis to $5.9 billion.

Book value per share was $40.82, up from $36.28 as of Mar 31, 2017.

As of Mar 31, 2018, total capital ratio came in at 24.1%, increasing from 22.7% as of Mar 31, 2017. Also, Tier 1 capital ratio was 23.2% compared with 21.8% in the year-ago period.

Also, return on equity came in at 16.7% at the end of the reported quarter, up from 8.8% a year ago.

Fiscal 2018 Guidance

Management projects net interest margin to be in the range of 3.10-3.20%.

Management expects the acquisition of Scout Investments and its Reams Asset Management division to generate nearly $18 million of revenues per quarter.

The company expects pre-tax margin to reach over 17%. Specifically, management targets pre-tax margin for PCG and Capital Markets segments to be 12% and 15%, respectively.

Moreover, compensation ratio is anticipated to be less than 67%. Raymond James targets to achieve ROE in the range of 14-15%.

Management expects communication and information processing costs to be in the high $80 million to $90 million range per quarter. Business development expenses are expected to be at the higher end of the $30-$40 million range per quarter.

Management projects blended federal statutory tax rate to be in the range of 27-28%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter..

VGM Scores

At this time, RJF has a nice Growth Score of B and a grade with the same score on the momentum front. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. It's no surprise RJF has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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