Raymond James (RJF) Beats Q3 Earnings As Revenues Rise

Raymond James Financial Inc. (NYSE:RJF) announced third-quarter fiscal 2016 (ended Jun 30) adjusted earnings per share of 93 cents, which surpassed the Zacks Consensus Estimate of 88 cents. Also, on a year-over-year basis, the bottom line was up 2%.

Revenue growth put the spark in the results, though a challenging environment for equity investment banking and trading activity marginally weighed on the top line. Also, while growth in assets acted as a tailwind, an increase in expenses and a significant rise in loan loss provisions were the undermining factors.

After taking into consideration acquisition related charges, net income totaled $125.5 million, down 6% from the year-ago quarter.

Revenue Growth Supported Results

Net revenues amounted to $1.36 billion, improving 3% year over year. The rise was attributable to an increase in all the revenue components excepting investment banking and other revenues. Further, the reported figure beat the Zacks Consensus Estimate of $1.32 billion.

Segment-wise, for the reported quarter, RJ Bank recorded a revenue increase of 24%. Further, Capital Markets witnessed revenue growth of 8%, while Asset Management and Private Client Group depicted a top-line improvement of 2% and 1%, respectively. On the other hand, Others reported a 41% decline in the top line.

Non-interest expenses increased 4% year over year to $1.17 billion. The rise was largely due to acquisition-related expenses and a drastic increase in bank loan loss provision, partially offset by lower business development costs and investment sub-advisory fees.

As of Jun 30, 2016, client assets under administration grew 7% on a year-over-year basis to $534.5 billion, while financial AUM rose 2% to $71.7 billion.

Strong Balance Sheet & Ratios

As of Jun 30, 2016, Raymond James reported total assets of $28.8 billion, up 16% year over year. Further, shareholders’ equity rose 6% year over year to $4.75 billion.

Book value per share was $33.60, up from $31.16 as of Jun 30, 2015.

As of Jun 30, 2016, total capital ratio came in at 22.3%, up marginally from 22.2% as of Jun 30, 2015. Also, Tier 1 capital ratio stood at 21.2% compared with 21.3% in the year-ago period.

However, return on equity (on an annualized basis) came in at 10.7% as of Jun 30, 2016, down from 12.0% a year ago.

Our Take

Going forward, Raymond James’ consistent efforts to enhance segmental performance, supported by its robust balance sheet, are expected to yield positive results. Also, the company’s asset strength and synergies from acquisitions are likely to be accretive to earnings.

However, we remain apprehensive about the impact of mounting expenses and the rigor of regulatory pressure on the company’s financials.

RAYMOND JAS FIN Price, Consensus and EPS Surprise

RAYMOND JAS FIN Price, Consensus and EPS Surprise | RAYMOND JAS FIN Quote

Currently, Raymond James carries a Zacks Rank #4 (Sell).

Performance of Other Investment Brokerage Firms

The Charles Schwab Corp.’s (NYSE:SCHW) second-quarter 2016 earnings of 30 cents per share were in line with the Zacks Consensus Estimate. Revenue growth, lower level of fee waivers and stable provisions acted as tailwinds. However, higher expenses remained a concern.

Interactive Brokers Group, Inc. (NASDAQ:IBKR) reported second-quarter adjusted earnings per share of 40 cents, beating the Zacks Consensus Estimate by 14.3%. Results primarily benefited from significant growth in net interest income, increased daily average revenue trades (“DARTs”) and an improved performance at the Electronic Brokerage segment.

TD Ameritrade Holding Corporation (NASDAQ:AMTD) reported third-quarter fiscal 2016 (ended Jun 30) earnings per share of 39 cents, beating the Zacks Consensus Estimate by a penny. Higher revenues were partly offset by a rise in expenses.