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What's in the Offing for Raymond James (RJF) in Q3 Earnings?

Zacks Equity Research

Raymond James RJF is schedule to announce third-quarter fiscal 2019 (ended Jun 30) results on Jul 24, after market close. Its earnings and revenues are expected to grow year over year.

Strong investment banking performance, rise in client assets balance and higher interest rates supported the company’s second-quarter fiscal 2019 results, which surpassed the Zacks Consensus Estimate. These were partly offset by higher expenses.

It has a decent earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters.

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

Also, the Zacks Consensus Estimate for the to-be-reported quarter’s earnings of $1.86 has remained unchanged over the past 30 days. Earnings estimates implies a rise of 20% from the year-ago reported figure. Also, the consensus estimate for sales of $1.92 billion indicates 4.6% growth.

Factors to Influence Q3 Results

Modest advisory fees growth: While dealmakers across the globe were active during the quarter, global deal value and volume witnessed a fall due to higher borrowing costs and several geopolitical concerns. So, these will have an adverse impact on Raymond James’ advisory fees. Nonetheless, the strong M&A deal pipeline from the previous quarters will offer some support.

Underwriting fees growth to be muted: Fears of economic slowdown and uncertainty over the Federal Reserve’s monetary policy weighed on companies’ plans to raise capital by issuing shares. Thus, Raymond James’ equity underwriting fees are expected to be soft despite decent stock market performance.

Further, rise in interest rates is likely to have lowered companies’ involvement in debt issuance activities. Nonetheless, the Fed’s dovish stance on future rate hikes must have led to a slight increase in debt issuances during the quarter. Thus, debt underwriting fees are not expected to increase much.

Slowdown in trading activities: Client activity slowed down in the to-be-reported quarter, given several concerns including a few lingering ones from the prior quarters like uncertainty related to Brexit and U.S.-China trade war, and fears of global economic slowdown. The Fed’s policy accommodation stance led to ambiguity as well. However, these were not enough to result in a substantial rise in client activity and volumes. So, Raymond James’ trading revenues are likely to witness a downturn.

Interest income not to be of much support: With economic stabilization, demand for loans is expected to continuing rising. However, during the to-be-reported quarter, overall lending scenario remained muted. This, along with the central bank’s accommodative stance, flattening of the yield curve and steadily rising deposit betas might slightly hurt RJ Bank’s interest income growth.

Expenses to rise: Raymond James consistently hires advisors and invests in franchises and thus, overall expenses are expected to increase. Further, regulatory changes and a highly competitive environment might lead to rise in costs.

Notably, management expects communication and information processing costs to be roughly $100 million. Business development expenses and other costs are expected to be at the higher end of the $45-$50 million and $70-$80 million range, respectively.

Here is what our quantitative model predicts:

Our proven model shows that Raymond James does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

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: Raymond James currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Here are a few finance sector stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +0.33% and sports a Zacks Rank #1 (Strong Buy) at present. The company is scheduled to release results on Jul 24.

The Earnings ESP for BOK Financial Corporation BOKF is +1.16% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 24.

Ares Capital Corporation ARCC is slated to release results on Jul 30. It presently has an Earnings ESP of +1.02% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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