What's in the Card for Raymond James (RJF) in Q3 Earnings?
Raymond James RJF is slated to announce third-quarter fiscal 2023 (ended Jun 30) results on Jul 26, after market close. Quarterly earnings and revenues are expected to have witnessed a rise on a year-over-year basis.
In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were adversely impacted by a rise in expenses, disappointing investment banking (IB) performance and higher bank loss provision for credit losses. Yet, higher interest income, a rise in loan demand and past acquisitions acted as tailwinds.
Raymond James has a decent earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the surprise being 0.14%, on average.
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 the company’s fiscal third-quarter earnings is pegged at $2.07, which has moved 1.9% lower over the past 30 days. The figure indicates growth of 28.6% from the year-ago quarter’s reported number. Our estimate for adjusted earnings is pegged at $2.04, implying a 26.9% improvement.
The consensus estimate for sales of $2.89 billion suggests 6.2% year-over-year growth. We expect net revenues to be the same as the consensus number.
Factors to Note for Q3
Investment Banking Fees: Global deal-making continued to slump on a year-over-year basis in the second quarter, though green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds. Thus, both deal volume and total deal value crashed in the fiscal third quarter, because of which Raymond James’ advisory fees are likely to have been hurt.
For similar reasons, the equity market performance was disappointing in the to-be-reported quarter and thus, IPOs and follow-up equity issuances dried up. On the other hand, bond issuance volumes witnessed a slight improvement. Nonetheless, RJF’s underwriting fees are expected to have been negatively impacted in the quarter.
The consensus estimate for IB fees is pegged at $163.7 million, suggesting a 26.6% plunge on a year-over-year basis. We anticipate IB fees of $196.9 million.
Trading Revenues: Unlike the past few quarters, when huge market volatility and client activity drove trading revenues, capital markets were subdued in the to-be-reported quarter. The Congressional debate over the debt ceiling, risks of an economic downturn/recession, the Federal Reserve’s hawkish monetary policy stance to stem out “sticky” inflation and geopolitical concerns led to ambiguity among investors.
These factors resulted in lower volatility in equity markets and other asset classes, including commodities, bonds and foreign exchange. So, Raymond James’ trading revenues are likely to have been subdued.
Net Interest Income: Lending activities slowed down in the to-be-reported quarter. Continuing with its efforts to curb inflation, the Fed raised the interest rates by another 25 basis points in May before pausing the hike in the June FOMC meeting. The policy rate is now at a 15-year high of 5-5.25%.
While this is likely to have had a favorable impact on RJF’s net interest income (NII), the inversion of the yield curve in the June-ended quarter and higher deposit costs are expected to have weighed on it to some extent.
Our estimate for interest income stands at $754.4 million, suggesting a substantial jump from the prior-year quarter.
Expenses: Raymond James consistently hires advisors and invests in franchises. Thus, overall expenses are expected to have risen in the quarter. Also, due to a highly competitive environment, costs might have been elevated.
We project total non-interest expenses to be $2.34 billion, implying a 1.7% increase.
Management’s Q3 Expectations
The company expects combined NII and RJBDP fees from third-party banks to decline sequentially due to a decrease in third-party RJBDP fees, given the lower average balances with third-party banks.
Management expects the bank segments net interest margin to contract from the prior quarter, given the higher level of cash balances it plans to maintain during the volatile period as well as the impact from higher cost diversified funding sources.
What the Zacks Model Predicts
According to our proven model, the chances of Raymond James beating the Zacks Consensus Estimate this time are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
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 +0.61%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Other Finance Stocks Worth a Look
A couple of other 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:
The Earnings ESP for OneMain Holdings, Inc. OMF is +7.26% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report second-quarter 2023 results on Jul 26.
Over the past 30 days, the Zacks Consensus Estimate for OMF’s quarterly earnings has been revised 1.6% lower.
SEI Investments SEIC is also scheduled to release second-quarter 2023 earnings on Jul 26. SEIC, which carries a Zacks Rank #2 at present, has an Earnings ESP of +0.78%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SEIC’s quarterly earnings estimates have moved 1.2% north over the past month.
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Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
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OneMain Holdings, Inc. (OMF) : Free Stock Analysis Report
