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Raymond James' (RJF) Q4 Earnings Miss on Dismal Trading

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RPM Banks on Buyout & Expansion Plans, Costs on the Rise

RPM likely to benefit from cost-saving initiatives and continuous focus on strategic acquisitions amid rising costs.

Raymond James RJF announced fourth-quarter fiscal 2018 (ended Sep 30) adjusted earnings per share of $1.68, which lagged the Zacks Consensus Estimate of $1.81. However, on a year-over-year basis, the bottom line increased 14%.

Results benefited from improvement in net revenues, reflecting strong investment banking performance and higher interest rates. Also, growth in assets acted as a tailwind. However, higher expenses and dismal trading performance were on the downside.

After considering adjustment related to the estimated impact of the tax act, net income for the quarter totaled $262.7 million or $1.76 per share, up from $193.5 million or $1.31 per share in the year-ago quarter.

For fiscal 2018, adjusted earnings were $6.47 per share, up 24% year over year. This, however, missed the Zacks Consensus Estimate of $6.62. Net income (GAAP basis) was $856.7 million, jumping 34% from the prior year.

Revenues Improve, Costs Rise

Net revenues for the quarter amounted to $1.90 billion, rising 12% year over year. The rise was attributable to an increase in almost all the revenue components except net trading profits and other revenues. However, the figure lagged the Zacks Consensus Estimate of $1.91 billion.

For fiscal 2018, net revenues grew 14% from the prior year to $7.27 billion. However, it marginally missed the Zacks Consensus Estimate of $7.28 billion.

Segment wise, in the reported quarter, RJ Bank registered an increase of 20% in net revenues. Further, Asset Management and Private Client Group depicted top-line improvement of 31% and 12%, respectively. Also, Capital Markets witnessed a rise of 3% in net revenues, while Others reported negative revenues.

Non-interest expenses increased 10% year over year to $1.55 billion. The rise was largely due to increase in all cost components, except for the absence of acquisition-related costs and losses on extinguishment of debt.

As of Sep 30, 2018, client assets under administration increased 14% on a year-over-year basis to $790.4 billion, while financial assets under management surged 46% to $140.9 billion.

Balance Sheet Strong, Capital Ratios Improve

As of Sep 30, 2018, Raymond James reported total assets of $37.4 billion, up 3% sequentially. Total equity rose 3% from the prior quarter to $6.4 billion.

Book value per share was $43.73, up from $38.74 as of Sep 30, 2017.

As of Sep 30, 2018, total capital ratio came in at 25.3%, increasing from 23.9% as of Sep 30, 2017. Also, Tier 1 capital ratio was 24.3% compared with 23.0% as of September 2017 end.

Also, return on equity came in at 16.8% at the end of the reported quarter, up from 14.1% a year ago.

Share Repurchase Update

During the reported quarter, Raymond James repurchased nearly 0.4 million shares for $36.4 million.

Our Take

Raymond James remains well positioned to grow via acquisitions, given its strong liquidity position. Also, backed by a solid capital position, it is expected to continue enhancing shareholder value through efficient capital deployment activities. However, mounting expenses mainly due to higher compensation costs and bank loan loss provisions are likely to continue hurting bottom-line growth.

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

 

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

Currently, Raymond James carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Brokerage Firms

Charles Schwab’s SCHW third-quarter 2018 earnings of 65 cents per share beat the Zacks Consensus Estimate by a penny. Revenue growth (driven by a rise in interest income and trading revenues) and absence of fee waivers drove the results. The quarter also witnessed an impressive rise in total client assets and new brokerage accounts. However, higher expenses remained a concern.

Interactive Brokers Group, Inc.’s IBKR third-quarter earnings per share of 51 cents surpassed the Zacks Consensus Estimate of 49 cents. Results benefited from an improvement in revenues and rise in DARTs. Further, the Electronic Brokerage segment continued to perform decently. Nonetheless, higher expenses were a headwind.

E*TRADE Financial ETFC delivered a positive earnings surprise of 20.5% in third-quarter 2018. Earnings of $1.00 per share comfortably surpassed the Zacks Consensus Estimate of 83 cents. The results reflected improved net revenues, controlled expenses and a benefit to provision for loan losses. DARTs increased on a year-over-year basis. The quarter also registered a rise in customer accounts and reduced delinquencies.

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