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Raymond James (RJF) Q1 Earnings Beat, to Acquire Silver Line

Zacks Equity Research

Raymond James RJF announced first-quarter fiscal 2019 (ended Dec 31) adjusted earnings per share of $1.79, which handily outpaced the Zacks Consensus Estimate of $1.61. Also, on a year-over-year basis, it increased 11%.

Results benefited from improvement in net revenues, reflecting strong investment banking performance and higher interest rates. However, higher expenses and decline in client assets were on the downside.

After considering loss related to the sale of European equity research business, net income totaled $249 million or $1.69 per share, up from $119 million or 80 cents per share in the year-ago quarter.

Revenues Improve, Costs Rise

Net revenues amounted to $1.93 billion, growing 12% year over year. The rise was attributable to an increase in almost all the revenue components except total brokerage revenues. Also, the top line beat the Zacks Consensus Estimate of $1.90 billion.

Segment wise, in the reported quarter, RJ Bank registered an increase of 23% in net revenues. Further, Asset Management and Private Client Group depicted top-line improvement of 15% and 10%, respectively. Also, Capital Markets witnessed a rise of 17% in net revenues while Others reported significant improvement.

Non-interest expenses were up 13% year over year to $1.60 billion. The rise was largely due to increase in all cost components.

As of Dec 31, 2018, client assets under administration declined marginally to $725.4 billion from $727.2 billion as of Dec 31, 2017. Further, financial assets under management declined 3% to $126.5 billion.

Balance Sheet Strong, Capital Ratios Improve

As of Sep 30, 2018, Raymond James reported total assets of $38.5 billion, up 3% sequentially. Total equity declined 5% from the prior quarter to $6.4 billion.

Book value per share was $43.69, up from $39.25 as of Dec 31, 2017.

As of Dec 31, 2018, total capital ratio came in at 24.7%, increasing from 23.3% on Dec 31, 2017. Also, Tier 1 capital ratio was 23.6% compared with 22.3% as of December 2017 end.

Also, adjusted return on equity came in at 16.9% at the end of the reported quarter, up from 16.0% a year ago.

Share Repurchase Update

During the reported quarter, Raymond James repurchased nearly 6.1 million shares for $458 million.

Raymond James to Acquire Silver Lane Advisors

Concurrent with the earnings release, Raymond James announced an agreement to acquire Silver Lane Advisors LLC — a boutique investment bank focused on M&A in the financial services sector. The financial terms of the deal, expected to close in April, were not disclosed.

Having expertise in the asset and wealth management sectors, Silver Line Advisors will complement Raymond James’ existing Financial Services Investment Banking business.

Jim Bunn, President of Raymond James Global Equities & Investment Banking said “Integrating their deeply experienced professionals into our existing Financial Services practice further positions us to capitalize on the growing demand for asset and wealth management expertise, while offering clients a broader range of capabilities.”

Following the closure of the deal, Silver Lane’s professionals will form and represent the Asset & Wealth Management group within the Financial Services Investment Banking practice.  

The acquisition is in sync with Raymond James’ efforts to expand Financial Services practice, which provides strategic advisory and equity and debt capital formation capabilities to its institutional clients.

Raymond James Financial Chairman and CEO Paul Reilly stated “Silver Lane is a strong cultural and strategic fit, which will grow our presence in a sector we’ve been focused on expanding for some time. Their commitment to client service and giving back to the community mirrors values which are core to Raymond James and illustrates what we look for in an acquisition.”

Our Take

Raymond James remains well positioned to grow via acquisitions, given its strong liquidity position. 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 #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance and Upcoming Release of Other Investment Brokerage Firms

Charles Schwab’s SCHW fourth-quarter earnings of 65 cents per share beat the Zacks Consensus Estimate of 64 cents. Also, earnings surged 59% from the prior-year quarter.

Interactive Brokers Group, Inc.’s IBKR fourth-quarter 2018 earnings per share of 57 cents missed the Zacks Consensus Estimate of 59 cents. The figure compares favorably with the prior-year quarter’s adjusted earnings of 43 cents.

LPL Financial Holdings Inc. LPLA is slated to report results on Jan 31.

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