Advisory Income To Support Raymond James' (RJF) Q1 Earnings

Raymond James (NYSE:RJF) is scheduled to announce first-quarter fiscal 2019 (ended Dec 31) results on Jan 23, after market close. Its revenues are expected to grow year over year while earnings will likely be stable.

Rise in operating expenses and dismal trading performance were the primary undermining factors that hurt the company’s fourth-quarter fiscal 2018 results, which lagged the Zacks Consensus Estimate. This was partially offset by improved investment banking performance and higher interest rates.

Also, the stock 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, the average negative surprise being 0.2%.

Further, the Zacks Consensus Estimate for the to-be-reported quarter’s earnings of $1.61 has moved 2.4% downward over the past 30 days. The earnings estimates reflect on par performance. Also, the consensus estimate for sales of $1.9 billion indicates 10.1% growth from the prior-year quarter.

Factors to Influence Q1 Results

Advisory fees to show some strength: While decline in global M&A deal volume (due to volatile markets and increase in borrowing costs) in the October-December quarter will likely hamper Raymond James’ advisory fees, the strong M&A deal pipeline from the previous quarters will provide modest support.

Loan growth in RJ Bank to support 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 are likely to slightly hamper growth.

Underwriting fees growth dismal: Seasonal slowdown is expected to hamper underwriting performance in the quarter. Fears of global economic slowdown and increased volatility weighed on companies’ plans to raise capital by issuing shares. Further, rise in interest rates is likely to have lowered companies’ involvement in debt issuance activities. Thus, debt underwriting fees are not expected to increase much.

Slowdown in trading activities: Similar to the prior three quarters, substantial volatility persistedin the equity markets during the to-be-reported quarter. Several developments — including the further escalation of U.S.-China trade war, Brexit-related uncertainty, fears of global economic slowdown, changing yield curve and the Federal Reserve’s stance related to interest rate hikes — rocked the markets and kept the trading desks busy. Thus, an increase in equity trading activities is expected.

Nonetheless, soft fixed income trading will likely be an offsetting factor. 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 will likely lead to a rise in expenses.

Notably, management expects communication and information processing costs to be nearly $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 #3, 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 finance 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:

Huntington Bancshares Incorporated (NASDAQ:HBAN) is slated to release results on Jan 24. It has an Earnings ESP of +3.97% and a Zacks Rank #3.

Prosperity Bancshares, Inc. (NYSE:PB) is slated to announce results on Jan 30. It has an Earnings ESP of +1.11% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ares Capital Corporation (NASDAQ:ARCC) is scheduled to release results on Feb 12. It has an Earnings ESP of +1.10% and carries a Zacks Rank #3.

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