Raymond James (RJF) Rides on Buyouts, Expenses Keep Rising
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 aiding its financials. However, the volatile nature of the investment banking (IB) business and mounting expenses are headwinds.
Raymond James’ successful business expansion in Europe and Canada over the years positions it well for growth. In September 2023, the company acquired Canada-based Solus Trust Company Limited. In fiscal 2022, the company acquired SumRidge Partners, TriState Capital Holdings and the U.K.-based Charles Stanley Group PLC. These, along with past several acquisitions, continue to be accretive and support its financials. Management is aiming for many such acquisitions to bolster its PCG and Asset Management segments driven by a robust balance sheet position.
The PCG segment remains a standout performer for the company. Net revenues in the segment have witnessed a CAGR of 15.9% over the last three fiscal years (2020-2023). The acquisition of the U.S. Private Client Services unit of Deutsche Asset & Wealth Management in 2016 added a significant amount of client assets to the segment's balance sheet, thereby further supporting its performance. We project the segment’s revenues to witness a CAGR of 5.3% by fiscal 2026.
In the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 11%, outperforming the industry's growth of 9.6%.
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Yet, the current heightened geopolitical and macroeconomic uncertainties are likely to weigh on RJF’s IB performance in the near term. In fiscal 2022, the company’s IB revenues declined 4%, while in fiscal 2023, it plunged 41%. The company’s heavy reliance on the IB business, which is closely tied to the volatile performance of the capital market, is worrisome. We project IB revenues to slip 4.7% in fiscal 2024.
Also, rising expenses remain a major challenge for the company. Its non-interest expenses registered a CAGR of 10.4% over the last three fiscal years (2010-2023). Regulatory changes, inorganic expansion efforts and a highly competitive environment will likely lead to a further increase in expenses in the quarters ahead. We expect total non-interest expenses to witness a CAGR of 5.9% by fiscal 2026.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Tradeweb Markets TW and Arrow Financial Corporation AROW. At present, both TW and AROW sport 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 Tradeweb’s current-year earnings has remained unchanged at $1.19 over the past 30 days. TW’s shares have gained 10% in the past three months.
The Zacks Consensus Estimate for Arrow Financial’s 2023 earnings has remained unchanged at $1.81 over the past 30 days. In the past three months, shares of AROW have jumped 70.6%.
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