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Raymond James Financial, Inc. (RJF) Up 5.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Raymond James Financial, Inc. (RJF). Shares have added about 5.6% 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 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 catalysts.

Raymond James Q4 Earnings Top Estimates on Solid NII Rise

Raymond James’ fourth-quarter fiscal 2022 (ended Sep 30) adjusted earnings of $2.08 per share surpassed the Zacks Consensus Estimate of $2.00. The bottom line was, however, down 2% from the prior-year quarter.

Higher interest rates and a rise in loan demand acted as tailwinds, which led to a solid rise in net interest income. The performance of the Private Client Group was impressive. Also, the acquisitions over the past years supported the company’s financials to some extent.

Yet, a rise in expenses and poor investment banking performance due to heightened geopolitical and macroeconomic ambiguities were the undermining factors. Also, RJF recorded bank loan provision for credit losses during the quarter, which indicates “a weaker macroeconomic outlook.”

Net income available to common shareholders (GAAP basis) was $437 million, up 2% year over year.

In fiscal 2022, adjusted earnings per share of $7.49 beat the consensus estimate of $7.37 and grew 3% year over year. Net income available to common shareholders (GAAP basis) was $1.51 billion, increasing 7%.

Revenues & Costs Increase

Net revenues were $2.83 billion, increasing 5% year over year. The rise was mainly driven by higher NII and account and service fees. The top line also beat the Zacks Consensus Estimate of $2.73 billion.

In fiscal 2022, net revenues rose 13% to $11 billion. The top line outpaced the consensus estimate of $10.90 billion.

Segment-wise, in the reported quarter, the Bank segment registered a surge of 143% from the prior year in net revenues. This was driven by higher interest rates and the inclusion of TriState Capital for a full quarter. Also, Private Client Group recorded an 11% growth in net revenues. Capital Markets’ top line declined 28%, while Asset Management’s net revenues fell 9%. Others recorded negative revenues of $207 million compared with negative revenues of $72 million in the prior-year quarter.

Non-interest expenses were up 4% to $2.22 billion. The rise was mainly due to an increase in all cost components except Compensation, commissions and benefits expenses and investment sub-advisory fees. Also, RJF recorded a bank loan provision for credit losses of $34 million compared with $5 million in the prior-year quarter.

As of Sep 30, 2022, client assets under administration were $1.09 trillion, down 7% from the end of the prior-year quarter. Financial assets under management were $173.8 billion, down 9%.

Strong Balance Sheet & Capital Ratios

As of Sep 30, 2022, Raymond James reported total assets of $81 billion, down 6% from the prior quarter. Total equity fell 1% sequentially to $9.3 billion.

Book value per share was $43.41, up from $40.08 as of Sep 30, 2021.

As of Sep 30, 2022, total capital ratio was 20.5% compared with 26.2% as of Sep 30, 2021. Tier 1 capital ratio was 19.2% compared with 25% as of September 2021-end.

Return on common equity (annualized basis) was 18.7% at the end of the reported quarter compared with 21.3% a year ago.

Share Repurchase Update

During the reported quarter, RJF repurchased 0.6 million shares for $62 million.

Outlook

The PCG segment results for the first fiscal quarter of 2023 are expected to get adversely impacted by the expected 4% sequential decline in asset management and related administrative fees.

In the fiscal first quarter of 2023, asset management and related administrative fees are expected to decline 4% sequentially.

The average quarterly IB revenues in fiscal 2023 will be similar to what was experienced over the last two quarters. However, a lot of variables can impact the estimate but that is expected to result in a 20% decline in IB revenues in fiscal 2023.

In the Asset Management segment, results are expected to be positively impacted by higher financial assets under management.

Net interest margin and average yield from third-party banks are expected to keep increasing with the anticipated rate hikes.

Given a 75-basis-point rate increase in November and some assumptions around deposit beta and other variables, the company expects the average yield on RJBDP from third-party banks for the fiscal first quarter of 2023 to be 2.5% and the bank segment’s NIM to average 3.15%.

In fiscal 2023, non-compensation expenses are expected to be $1.7 billion, of which $410 million base represents some 1.5% growth sequentially each quarter in 2023.

Driven by the company’s current revenue mix, forward rate curve over the next 12 months, the impact of the TriState deal and the successful implementation of the expense initiative, the company targets a compensation ratio of less than 66%, going forward.

The company expects to repurchase shares worth $250 million per quarter for fiscal 2023 or $1 billion for the fiscal year.

An adjusted pre-tax margin of 19-20% is expected amid the higher interest rate environment.

The effective tax rate is expected to be 24-25%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Raymond James Financial, Inc. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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, Morgan Stanley (MS), has gained 11.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Morgan Stanley reported revenues of $12.99 billion in the last reported quarter, representing a year-over-year change of -12%. EPS of $1.53 for the same period compares with $2.04 a year ago.

For the current quarter, Morgan Stanley is expected to post earnings of $1.44 per share, indicating a change of -30.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Morgan Stanley. Also, the stock has a VGM Score of D.

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