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Investment Banking to Aid Raymond James' (RJF) Q4 Earnings

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Advance Auto Parts (AAP) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Raymond James RJF is scheduled to announce fourth-quarter fiscal 2018 (ended Sep 30) results on Oct 24, after the market closes. Its revenues and earnings are expected to grow year over year.

Rise in operating expenses and dismal trading performance were the primary undermining factors that hurt the company’s fiscal third-quarter results, which lagged the Zacks Consensus Estimate. This was partially offset by improved investment banking performance and higher interest rates.

Also, the stock has a decent earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters with an average beat of 4.2%.

Raymond James Financial, Inc. Price and EPS Surprise

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

Notably, the Zacks Consensus Estimate for the to-be-reported quarter’s earnings of $1.81 has moved 1.7% upward over the past 30 days. The earnings estimates reflect a year-over-year jump of 23.1%. Also, the consensus estimate for sales of $1.91 billion indicates 12.7% growth from the prior-year quarter.

Factors to Impact Q4 Results

Muted underwriting fees growth: Seasonal slowdown is expected to hamper underwriting performance to some extent in the quarter. Also, global equity markets slowed down as fears of a full-blown trade war weighed on companies’ plans to raise capital by issuing shares to some extent.

Furthermore, rise in interest rates is likely to have lowered companies’ involvement in debt issuance activities. Thus, debt underwriting fees are not expected to increase much.

Advisory fees to show some strength: While decline in global M&A deal volume in the July-September quarter will likely hamper Raymond James’ advisory fees, the strong M&A deal pipeline from the previous quarters will provide modest support.

Slowdown in trading activities: After an impressive performance in the prior two quarters driven by significant volatility, client activity remained low in the to-be-reported quarter. Developments including further escalation in the trade war and some other geo-political tensions in the quarter were inadequate to result in a significant rise in client activity. Therefore, Raymond James will likely record subdued growth in trading revenues.

Loan growth in RJ Bank to support interest income: With economic stabilization and a rise in demand for loans and higher rates, RJ Bank segment is expected to record a rise in interest income. However, the flattening of the yield curve and higher deposit betas will likely slightly hamper growth.

Management projects net interest margin to be 3.10-3.20% in fiscal 2018.

Expenses to rise: Raymond James consistently hires advisors and invests in franchises and thus, overall expenses are expected to increase. Further, regulatory changes and a highly competitive environment will likely lead to a rise in expenses.

Notably, for fiscal 2018, management expects communication and information processing costs to be in the high $80 million to $90 million range. Business development expenses are expected to be at the higher end of the $45-$50 million range.

Here is what our quantitative model predicts:

We cannot conclusively predict an earnings beat for Raymond James this time. That’s because it does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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: Raymond James currently has a Zacks Rank #2 (Buy), which increases the predictive power of the ESP. But we need to have a positive earnings ESP to be sure of the earnings beat.

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 in their upcoming releases:

Ameriprise Financial, Inc. AMP is slated to release third-quarter 2018 results on Oct 23. It has an Earnings ESP of +4.30% and a Zacks Rank #2.

SVB Financial Group SIVB is slated to report results on Oct 25. It has an Earnings ESP of +1.22% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cullen/Frost Bankers CFR is also slated to release results on Oct 25. It has an Earnings ESP of +0.07% and carries a Zacks Rank #3.

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