Raymond James Tops Estimates


Raymond James Financial Inc.'s (RJF) fiscal second quarter 2012 (ended March 31) earnings per share came in at 64 cents, surpassing the Zacks Consensus Estimate of 56 cents. Moreover, this exceeded the prior-quarter earnings of 53 cents and came at par with the prior-year quarter earnings of 64 cents.

Earnings for the reported quarter exclude one-time charge of $21 million (pre-tax) primarily related to acquisition. Considering this charge, the company reported earnings of 52 cents per share.  

Improving top line was the major contributor to the better-than-expected results. In addition, asset growth served as a positive catalyst. On the other hand, escalating non-interest expense was the primary headwind.

Raymond James’ net income in the fiscal second quarter stood at $81.9 million, compared with $67.3 million in the previous quarter and $80.9 million in the year-ago quarter.

Performance in Detail

Raymond James recorded fiscal second-quarter net revenue of $871.9 million, up 11% sequentially and 2% year over year. Both the elevations were largely driven by augmented investment advisory fees, mounted interest income and higher other revenues. This also compared favorably with the Zacks Consensus Estimate of $846.0 million.

Non-interest expenses climbed 13% from the prior quarter and 5% from the prior-year quarter to $764.0 million. Both the increases were primarily attributable to elevated compensation, commissions and benefits as well as higher occupancy and equipment costs. This was partially offset by reduced loan loss provision.

As of March 31, 2012, assets under administration grew 8% sequentially and 6% year over year to $292 billion. Similarly, assets under management totaled $39 billion, up 11% from the prior quarter and 8% from the year-ago quarter.

Balance Sheet

As of March 31, 2012, Raymond James reported total assets of $19.0 billion and shareholders equity of $3.1 billion.

Book value per share at the end of fiscal second quarter was $22.84, compared with $21.34 at the end of the prior quarter and $20.42 at the end of the prior-year quarter.

Acquisition News

On April 2, Raymond James completed the acquisition of the securities brokerage arm of Morgan Keegan & Company Inc. Morgan Keegan was acquired from Regions Financial Corp. (RF) at the purchase price of about $1.2 billion. Raymond James and Regions are expected to start several mutually beneficial business relationships, including deposits, loan referrals and processing, which would benefit the shareholders in the long run.

The quarter under review included several charges related with the Morgan Keegan acquisition. Moreover, 11,075,000 of common shares were issued in February 2012 as a component of financing of this acquisition.

Furthermore, in February, the company acquired $400 million of the Canadian loan portfolio from Allied Irish Bank. Acquisition of this loan portfolio boosted the company’s net loans in the reported quarter.

Our Take

Raymond James’ efforts to boost the revenue growth by recruiting experienced advisors combined with the market recovery could further enhance its financials in the upcoming quarters. On the other hand, the regulatory issues and the increasing expenses will likely put the company’s profitability under pressure.

Nevertheless, the acquisitions by Raymond James indicate that its strategy is to grow through smaller acquisitions. Moreover, for the company, Morgan Keegan is a significant opportunity, which would help it to expand its brokerage and capital markets business.

Currently, Raymond James retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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