A month has gone by since the last earnings report for Raymond James (RJF). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Raymond James due for a breakout? 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 Q2 Earnings Top, Revenues Rise, Costs Up
Raymond James announced second-quarter fiscal 2019 (ended Mar 31) earnings per share of $1.81, which handily outpaced the Zacks Consensus Estimate of $1.67. 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. Further, client assets improved. However, rise in operating expenses was on the downside.
Net income totaled $261 million, up 7% year over year.
Revenues & Costs Rise
Net revenues amounted to $1.86 billion, growing 3% year over year. The rise was largely attributable to an increase in almost all the revenue components except total brokerage revenues. Also, the top line marginally surpassed the Zacks Consensus Estimate.
Segment wise, in the reported quarter, RJ Bank registered an increase of 18% in net revenues. Capital Markets witnessed a rise of 20% in the top line, while Private Client Group recorded in line net revenues. On the other hand, Asset Management witnessed a 1% fall in top line and Others did not record any revenues.
Non-interest expenses were up 3% year over year to $1.52 billion. The increase was mainly due to rise in almost all cost components.
As of Mar 31, 2019, client assets under administration grew 9%from the prior-year quarter to $796 billion. Further, financial assets under management increased 5% to $138.5 billion.
Balance Sheet Strong, Capital Ratios Improve
As of Mar 31, 2019, Raymond James reported total assets of $38.2 billion, down nearly 1% sequentially. Total equity increased4% from the prior quarter to $6.4 billion.
Book value per share was $45.35, up from $40.82 as of Mar 31, 2018.
As of Mar 31, 2019, total capital ratio came in at 25.3%, increasing from 24.3% as on Mar 31, 2018. Also, Tier 1 capital ratio was 24.3% compared with 23.3% as of March 2018 end.
Return on equity was 16.7% at the end of the reported quarter, on par with the prior-year quarter level.
Share Repurchase Update
During the reported quarter, Raymond James repurchased nearly 0.6 million shares for $47 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 subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. Notably, Raymond James has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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