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Raymond James Beats, Rev Jumps

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Raymond James Financial Inc.'s (RJF - Free Report) fiscal fourth quarter 2012 (ended September 30) earnings per share came in at 69 cents, beating the Zacks Consensus Estimate of 63 cents. Moreover, this substantially exceeded the prior-year quarter earnings of 52 cents.

For the fiscal year 2012, earnings per share came in at $2.51, beating the Zacks Consensus Estimate of $2.47. Moreover, this surpassed the earnings of $2.39 in the previous year.

Better-than-expected results were the outcome of an improved top line. Also, improvements in assets under management (AUM) and assets under administration were the positives for the quarter. However, higher expenses were the downside.

GAAP net income for the reported quarter came in at $83.3 million or 60 cents per share, compared with $68.9 million or 54 cents per share in the prior-year quarter.

Behind the Headlines

Raymond James’ total revenue in fiscal fourth-quarter came in at $1,093.5 million, up 31% year over year. The elevation was largely driven by improvements in net trading profits, securities commissions and fees, interest income as well as other revenues, partially offset by a decline in investment banking revenues. This compared favorably with the Zacks Consensus Estimate of $1061.0 million.

Moreover, total revenues for the fiscal year 2012 were recorded at $3.9 billion, up 15% from $3.4 billion in fiscal year 2011. This also compares favorably with the Zacks Consensus Estimate of $3.7 billion.

Non-interest expenses surged 36% from the prior-year quarter to $948.2 million. The hike was primarily attributable to elevated compensation and benefits expenses, occupancy and equipment costs, clearance and floor brokerage costs as well as business development expenses. These negatives were partially offset by a decline in bank loan loss provision.

As of September 30, 2012, assets under administration spiked 53% year over year to $390.3 billion. Similarly, AUM totaled $42.8 billion, expanding 33% from the year-ago quarter.

Balance Sheet

As of September 30, 2012, Raymond James reported total assets of $21.2 billion and shareholders’ equity of $3.3 billion compared with $18.0 billion and $2.6 billion, respectively, in the prior-year quarter. Book value per share at the end of the fiscal fourth quarter was $24.02 compared with $20.99 in the prior-year quarter.

Peer Performance

Raymond James’ peer, The Charles Schwab Corporation (SCHW - Free Report) reported its third quarter 2012 earnings on October 15. The earnings came in at 19 cents per share, marginally beating the Zacks Consensus Estimate of 17 cents. Also, this compared favorably with the year-ago quarter’s earnings of 18 cents. The results in the reported quarter included a non-recurring state tax benefit of about $20 million.

Improved asset management and administration fees as well as balance sheet restructuring actions were the positives for the quarter. Yet, higher operating expenses and provision for loan losses as well as a fall in net interest income and trading revenue partially dented the results.

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 #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a long-term ‘Neutral’ recommendation on the stock.

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