Advisory Fees, Loans To Aid Raymond James' (RJF) Q2 Earnings

Raymond James (NYSE:RJF) is slated to announce second-quarter fiscal 2019 (ended Mar 31) results on Apr 24, after market close. Its earnings and revenues are expected to grow year over year.

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

It doesn’t have a decent earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in only one of the trailing four quarters.

Further, the Zacks Consensus Estimate for the to-be-reported quarter’s earnings of $1.67 has moved 2.3% lower over the past 30 days. Earnings estimates implies a rise of 2.5% from the year-ago reported figure. Also, the consensus estimate for sales of $1.86 billion indicates 2.3% growth.

Factors to Impact Q2 Results

Advisory fees to show some strength: 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. Likewise, given the government shutdown and geopolitical ambiguity, IPO activities slowed down despite decent equity market performance during the quarter. So, these factors 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.

Loan growth in RJ Bank to aid interest income: With economic stabilization and a rise in demand for loans and higher rates, RJ Bank segment is expected to record a rise in interest income. However, flattening of the yield curve and higher deposit betas might slightly hamper growth.

Underwriting fees growth to be muted: Prolonged government shutdown at the beginning of the quarter and fears of economic slowdown weighed on companies’ plans to raise capital by issuing shares. Thus, Raymond James’ equity underwriting fees are expected to be soft.

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: Unlike the past few quarters, client activity slowed down in the to-be-reported quarter. Several concerns, including a few lingering ones from the prior quarters like uncertainty related to Brexit and U.S.-China trade war, and expectations of global economic slowdown continued. However, these were not enough to result in a substantial rise in client activity and volumes. Therefore, Raymond James will likely record subdued growth in trading revenues.

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 higher 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:

We cannot conclusively predict an earnings beat for Raymond James this time. That’s because it does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 has a Zacks Rank #1 (Strong Buy), which increases the predictive power of the ESP. But we need to have a positive Earnings ESP to be sure of the earnings beat.

Stocks to Consider

Here are a few bank 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:

BankUnited, Inc. (NYSE:BKU) has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

SVB Financial Group (NASDAQ:SIVB) is slated to release results on Apr 25. It has an Earnings ESP of +0.42% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Associated Banc-Corp (NYSE:ASB) is scheduled to release results on Apr 25. It presently has an Earnings ESP of +0.55% and a Zacks Rank #3.

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