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Factors Setting the Tone for Raymond James (RJF) Q3 Earnings

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Zacks Equity Research
·5 min read
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Raymond James RJF is slated to announce third-quarter fiscal 2020 (ended Jun 30) results on Jul 29, after market close. Its earnings and revenues are expected to have declined in the quarter.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. The results benefited from an increase in revenues, partly offset by higher expenses and a decline in assets balance.

Raymond James has a decent earnings surprise history. In the trailing four quarters, its earnings surpassed the Zacks Consensus Estimate twice, missed once and reported in line on another occasion.

Raymond James Financial, Inc. Price and EPS Surprise

Raymond James Financial, Inc. Price and EPS Surprise
Raymond James Financial, Inc. Price and EPS Surprise

Raymond James Financial, Inc. price-eps-surprise | Raymond James Financial, Inc. Quote

The Zacks Consensus Estimate for earnings of 92 cents per share for the quarter has moved 61.4% north over the past 30 days. Nonetheless, the figure indicates a decline of 48.9% from the year-ago reported number.

Also, the consensus estimate for sales of $1.85 billion suggests 3.8% year-over-year fall.

Before we take a look at what our quantitative model predicts, let’s check out the factors that are expected to have influenced Raymond James’ fiscal third-quarter performance.

Key Factors

Trading Revenues: A persistent rise in market volatility on account of the coronavirus pandemic was seen during the quarter. The coronavirus pandemic and concerns surrounding its impact on the economy weighed on investor sentiments. Thus, investors kept moving toward safe havens like Treasury bonds and other commodities like gold.

With a spike in volatility and higher client activities, Raymond James’ trading revenues are likely to have witnessed a significant boost in the to-be-reported quarter.

Underwriting Fees: There was a substantial rise in follow-up equity issuances as companies tried to build liquidity to tide over the pandemic crisis. However, IPO activities declined during the quarter.

Also, amid near-zero interest rates and the Federal Reserve’s bond purchase program that commenced on Mar 23, bond issuance volumes were strong as companies took this as an opportunity to bolster their balance sheets. Thus, growth in Raymond James’ equity underwriting and debt origination fees is expected to have been solid in the to-be-reported quarter.

Advisory Fees: Deal making went for a toss, and the economy and business activities came to a grinding halt in the April-June quarter as the coronavirus pandemic persistently wreaked havoc. Global M&As plunged to the lowest level in more than a decade. Thus, as global M&A activity remained muted, Raymond James’ advisory fees are likely to have been adversely impacted.

Interest Income: The lending backdrop was muted during the quarter as the virus outbreak resulted in a drop in loan demand, as business and consumer activities came to a halt. Thus, due to soft loan growth and low interest rates, Raymond James’ interest income growth is expected to have been soft.

Notably, management expects net interest margin for third-quarter fiscal 2020 “to be somewhere around 2.5%.”

Expenses: Raymond James consistently hires advisors and invests in franchises and thus, overall expenses might have risen in the quarter. Further, due to a highly competitive environment, costs are expected to have been elevated.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict an earnings beat for Raymond James this time around. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Raymond James is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank #3.

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 this time around:

Hercules Capital, Inc. HTGC has an Earnings ESP of +3.66% and currently carries a Zacks Rank #3.

Moody's Corporation MCO carries a Zacks Rank of 3 at present and has an Earnings ESP of +2.14%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Global Management, LLC APO — which carries a Zacks Rank of 3 at present — has an Earnings ESP of +2.96%.

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