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Raymond James Financial, Inc. (RJF) Up 3.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Raymond James Financial, Inc. (RJF). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Raymond James Financial, Inc. 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 Q2 Earnings Miss on Muted IB

Raymond James’ second-quarter fiscal 2023 (ended Mar 31) adjusted earnings of $2.03 per share missed the Zacks Consensus Estimate of $2.17 by a considerable margin. The bottom line, however, was up 25% from the prior-year quarter. We had projected adjusted earnings per share of $2.15.

A weak investment banking performance amid heightened geopolitical and macroeconomic ambiguities hurt the Capital Markets segment’s results. Also, RJF recorded bank loan provision for credit losses during the quarter on the deteriorating macroeconomic outlook. Further, expenses increased during the quarter.

Yet, higher interest rates and a rise in loan demand acted as tailwinds, which led to a substantial jump in net interest income. Further, the performance of the Private Client Group was robust. Also, the acquisitions over the past years supported the company’s financials to some extent.

Net income available to common shareholders (GAAP basis) was $425 million, up 32% year over year.

Revenues & Costs Rise

Net revenues were $2.87 billion, up 7% year over year. The top line, however, marginally missed the Zacks Consensus Estimate of $2.88 billion. Our estimate for net revenues was the same as the consensus number.

Segment-wise, in the reported quarter, RJ Bank registered a surge of 174% from the prior year in net revenues. Also, the Private Client Group recorded 12% growth in net revenues. Capital Markets’ top line declined 27%, while Asset Management’s net revenues fell 8%. Others recorded revenues of $10 million against negative revenues of $18 million in the prior-year quarter.

Non-interest expenses rose 3% to $2.32 billion. Our estimate for non-interest expense was $2.27 billion. Also, RJF recorded a bank loan provision for credit losses of $28 million, up from $21 million in the prior-year quarter.

As of Mar 31, 2023, client assets under administration were $1.22 trillion, down 3% from the end of the prior-year quarter. Financial assets under management of $194.4 billion were relatively stable.

Strong Balance Sheet & Capital Ratios

As of Mar 31, 2023, Raymond James reported total assets of $79.18 billion, up 3% from the prior quarter. Total equity grew 1% sequentially to $9.88 billion.

Book value per share was $46.67, up from $41.38 as of Mar 31, 2022.

As of Mar 31, 2023, total capital ratio was 21.4% compared with 25% as of Mar 31, 2022. Tier 1 capital ratio was 20.1% compared with 23.9% as of March 2022-end.

Return on common equity (annualized basis) was 17.3% at the end of the reported quarter compared with 15% a year ago.

Share Repurchase Update

During the reported quarter, RJF repurchased 3.75 million shares for $350 million.

Outlook

The company expects combined net interest income and RJBDP fees from third-party banks to decline sequentially in the fiscal third quarter of 2023 due to a decrease in third-party RJBDP fees given the lower average balances with third-party banks.

Management expects the bank segments NIM in the fiscal third quarter to contract from the second 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.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Raymond James Financial, Inc. has a poor Growth Score of F, a grade with the same score on the momentum front. However, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Raymond James Financial, Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Raymond James Financial, Inc. belongs to the Zacks Financial - Investment Bank industry. Another stock from the same industry, The Charles Schwab Corporation (SCHW), has gained 4.9% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

The Charles Schwab Corporation reported revenues of $5.12 billion in the last reported quarter, representing a year-over-year change of +9.5%. EPS of $0.93 for the same period compares with $0.77 a year ago.

The Charles Schwab Corporation is expected to post earnings of $0.78 per share for the current quarter, representing a year-over-year change of -19.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.4%.

The Charles Schwab Corporation has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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