Raymond James (RJF) Rides on Acquisitions Amid Rising Costs
Raymond James Financial, Inc.'s RJF inorganic expansion activities, solid balance sheet position and the Private Client Group (“PCG”) segment’s robust performance are expected to keep supporting its financials. However, the volatile nature of the investment banking (IB) business and mounting expenses are concerns.
Raymond James’ successful business expansion in Europe and Canada over the years positions it well for growth. Its notable buyouts in the last fiscal year include SumRidge Partners, TriState Capital Holdings and the U.K.-based Charles Stanley Group PLC. Also, in fiscal 2021, the company acquired Cebile Capital and a boutique investment bank, Financo. These accretive deals are likely to continue supporting its financials. Further, management is aiming for many such acquisitions to bolster its PCG and Asset Management divisions.
The PCG segment remains a standout performer for the company. Net revenues for the segment have witnessed a compound annual growth rate (CAGR) of 12.9% over the last three fiscal years (2019-2022). The uptrend continued in the first nine months of fiscal 2023. We project the PCG segment’s revenues to witness a CAGR of 7.8% over the next three years.
Raymond James maintains a solid balance sheet position. As of Jun 30, 2023, the company had a total debt of $4.87 billion and cash and cash equivalents of $8.38 billion. Given the favorable factors and earnings strength, the company is expected to be able to meet its debt obligations, even if the economic situation worsens.
In the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 26.8% compared with the industry's growth of 14.7%.
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Nonetheless, rising expenses remain a major challenge for the company. Its non-interest expenses registered a CAGR of 12.2% over the last three fiscal years (2019-2022). Regulatory changes, inorganic expansion efforts and a highly competitive environment will likely lead to a further increase in expenses in the quarters ahead. We project total non-interest expenses to rise 3%, 9% and 7.6% in fiscal 2023, 2024 and 2025, respectively.
Also, the current heightened geopolitical and macroeconomic uncertainties are likely to weigh on IB performance in the near term. During the nine months ended Jun 30, 2023, RJF’s investment banking revenues plunged 49%. Additionally, the company’s heavy reliance on the IB business, which is closely tied to the volatile performance of the capital market, raises our concerns. We project IB revenues to decrease 45.1% in fiscal 2023.
Banks Worth a Look
A couple of better-ranked stocks from the finance space are First Community Bancshares FCBC and Bank7 BSVN. While First Community Bancshares carries a Zacks Rank #2 (Buy), Bank7 sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for First Community Bancshares’ current-year earnings has been revised 1.1% upward over the past 60 days. Its shares have gained 43.7% in the past three months.
The Zacks Consensus Estimate for Bank7’s 2023 earnings has been revised 7.4% upward over the past 30 days. In the past three months, BSVN shares have rallied 15.6%.
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