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Trading and IB to Support Raymond James' (RJF) Q1 Earnings

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Zacks Equity Research
·5 min read
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Raymond James RJF is slated to announce first-quarter fiscal 2021 (ended Dec 31) results on Jan 27, after market close. Its earnings are expected to have declined, while revenues are likely to have witnessed growth.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. The results benefited from robust Capital Markets segment performance and a rise in assets balance. These were partly offset by higher expenses and surge in provisions.

Raymond James has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the positive surprise being 24.72%, on average.

Raymond James Financial, Inc. Price and EPS Surprise

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

Raymond James Financial, Inc. price-eps-surprise | Raymond James Financial, Inc. Quote

The Zacks Consensus Estimate for earnings of $1.71 per share for the quarter has moved 8.9% upward over the past 30 days. Nevertheless, the figure indicates a decline of 9.5% from the year-ago reported number.

The consensus estimate for sales of $2.05 billion suggests 1.9% rise.

Before we take a look at what our quantitative model predicts, let’s check out the factors that are expected to have influenced Raymond James’ fiscal first-quarter performance.

Major Factors at Play

Trading Revenues: A persistent rise in market volatility on account of the coronavirus outbreak, vaccine breakthroughs and the U.S. Presidential election was witnessed during the quarter. Also, ambiguity over further support from the government in terms of more stimulus package and the Federal Reserve’s continued efforts to support the economy kept the clients active. With a spike in volatility and higher client activities, Raymond James’ trading revenues are likely to have witnessed a significant boost in the to-be-reported quarter.

Investment Banking (IB) Fees: Amid near-zero interest rates and the Federal Reserve’s bond purchase program, bond issuance volumes were solid in the quarter as companies took this as an opportunity to bolster their balance sheets. Further, IPO activities were robust, with the quarter being one of the busiest in the recent past. Also, as companies continued to build liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances.

Thus, growth in Raymond James’ underwriting fees is expected to have been solid in the to-be-reported quarter.

Moreover, deal making continued at a fast pace in the October-December quarter as economic and business activities gradually resumed. This resulted in a record number of announced global M&As. Further, amid the pandemic, many companies began business restructuring process with an aim to maintain profitability. Thus, Raymond James’ advisory fees are likely to have been positively impacted.

Therefore, the consensus estimate of IB fees is pegged at $178 million, suggesting 26.2% growth on a year-over-year basis.

Interest Income: Lending was subdued during the quarter as the virus outbreak resulted in a decline in loan demand amid economic slowdown. Thus, this along with low interest rates might have adversely affected Raymond James’ interest income growth.

Interest income is largely accounted in the company’s RJ Bank segment. The Zacks Consensus Estimate for the segment’s revenues of $161 million indicates 45.8% plunge from the prior year.

Expenses: Raymond James consistently hires advisors and invests in franchises and thus, overall expenses might have risen in the quarter. Also, due to a highly competitive environment, costs are expected to have been elevated.

What the Zacks Model Predicts

Our proven model does not conclusively predict an earnings beat for Raymond James this time around. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better.

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: The company currently carries a Zacks Rank #2 (Buy).

Stocks Worth a Look

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 this time around:

Ameriprise Financial, Inc. AMP is set to release earnings on Jan 27. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.43%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for SEI Investments Company SEIC is +3.38% and the company carries a Zacks Rank #2, currently. It is scheduled to report quarterly numbers on Jan 27.

Hilltop Holdings Inc. HTH is set to release earnings on Jan 28. The company, which sports a Zacks Rank of 1 at present, has an Earnings ESP of +9.80%.

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Hilltop Holdings Inc. (HTH) : Free Stock Analysis Report
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Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
SEI Investments Company (SEIC) : Free Stock Analysis Report
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