It has been about a month since the last earnings report for Raymond James (RJF). Shares have added about 3.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Raymond James due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Raymond James’ Q1 Earnings & Revenues Beat Estimates
Raymond James announced first-quarter fiscal 2019 (ended Dec 31) adjusted earnings per share of $1.79, which handily outpaced the Zacks Consensus Estimate of $1.61. Also, on a year-over-year basis, it increased 11%.
Results benefited from improvement in net revenues, reflecting strong investment banking performance and higher interest rates. However, higher expenses and decline in client assets were on the downside.
After considering loss related to the sale of European equity research business, net income totaled $249 million or $1.69 per share, up from $119 million or 80 cents per share in the year-ago quarter.
Revenues Improve, Costs Rise
Net revenues amounted to $1.93 billion, growing 12% year over year. The rise was attributable to an increase in almost all the revenue components except total brokerage revenues. Also, the top line beat the Zacks Consensus Estimate of $1.90 billion.
Segment wise, in the reported quarter, RJ Bank registered an increase of 23% in net revenues. Further, Asset Management and Private Client Group depicted top-line improvement of 15% and 10%, respectively. Also, Capital Markets witnessed a rise of 17% in net revenues while Others reported significant improvement.
Non-interest expenses were up 13% year over year to $1.60 billion. The rise was largely due to increase in all cost components.
As of Dec 31, 2018, client assets under administration declined marginally to $725.4 billion from $727.2 billion as of Dec 31, 2017. Further, financial assets under management declined 3% to $126.5 billion.
Balance Sheet Strong, Capital Ratios Improve
As of Sep 30, 2018, Raymond James reported total assets of $38.5 billion, up 3% sequentially. Total equity declined 5% from the prior quarter to $6.4 billion.
Book value per share was $43.69, up from $39.25 as of Dec 31, 2017.
As of Dec 31, 2018, total capital ratio came in at 24.7%, increasing from 23.3% on Dec 31, 2017. Also, Tier 1 capital ratio was 23.6% compared with 22.3% as of December 2017 end.
Also, adjusted return on equity came in at 16.9% at the end of the reported quarter, up from 16.0% a year ago.
Share Repurchase Update
During the reported quarter, Raymond James repurchased nearly 6.1 million shares for $458 million.
Fiscal 2019 Guidance
Management expects weakness in institutional commissions and trading profits to continue to adversely impacting Capital Markets segment.
Net interest margin is expected to be in the range of 3.20-3.25%.
Moreover, compensation ratio is anticipated to be less than 66.5%.
On a quarterly basis, management expects communication and information processing costs to be nearly $100 million. Business development expenses and other expenses are expected to be at the higher end of the $45-$50 million and $70-$80 million range, respectively.
Management projects effective tax rate to be 24-25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Raymond James has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Raymond James has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
To read this article on Zacks.com click here.