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Raymond James Lags Ests, Revs Up

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Raymond James Financial Inc.'s (RJF - Free Report) fiscal third quarter 2012 (ended June 30) earnings per share came in at 64 cents, marginally missing the Zacks Consensus Estimate of 67 cents. However, this exceeded the prior-year quarter earnings of 59 cents.

Lower-than-expected results were due to the escalating non-interest expenses, partially offset by improving top line. Also, a hike in assets, assets under management and assets under administration were the positives for the quarter.

After considering certain non-recurring items, the company reported income of $76.4 million or 55 cents per share compared with $46.8 million or 37 cents per share in the prior-year quarter.

In April, Raymond James completed the all-cash acquisition of Morgan Keegan and MK Holding and certain of its related affiliates from Regions Financial Corp. (RF - Free Report) for about $1.2 billion.

Behind the Headlines

Raymond James recorded fiscal third-quarter total revenue of $1,115.8 million, up 29% year over year. The elevation was largely driven by increase in net trading profits, securities commissions and fees, interest income as well as other revenues. This also compares favorably with the Zacks Consensus Estimate of $969.0 million.

Non-interest expenses climbed 23% from the prior-year quarter to $948.2 million. The quarter under review included a $21 million pretax charge for acquisition-related expenses, whereas the year-ago quarter incorporated a one-time charge of $45 million related to the repurchase of auction rate securities.

The hike in operating expenses was primarily attributable to rise in compensation, commissions and benefits, communications and information processing charges as well as higher occupancy and equipment costs.

As of June 30, 2012, assets under administration grew 35% year over year to $376 billion. Similarly, assets under management totaled $41 billion, expanding 11% from the year-ago quarter.

Balance Sheet

As of June 30, 2012, Raymond James reported total assets of $21.0 billion and shareholders equity of $3.2 billion. Book value per share at the end of fiscal third quarter was $23.29.

Our Take

Amidst the slowly recovering market, Raymond James’ solid balance sheet and its efforts to boost revenue by recruiting experienced advisors are expected to be accretive to its financials in the upcoming quarters. Moreover, the company’s capital strength and capital deployment activities should make its stock attractive to yield-seeking investors.

On the other hand, the regulatory issues, a low-interest rate environment and increasing expenses will likely put the company’s profitability under pressure.

Currently, Raymond James retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.

One of its peers, LPL Financial Holdings Inc. (LPLA - Free Report) , is scheduled to announce its second-quarter results on July 31.

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