Raymond James Profits Hurt By Higher Costs: Time To Sell?

Raymond James Financial’s (NYSE:RJF) escalating expenses continue to hurt the bottom line. Rise in components including compensation costs and bank loan loss provision act as the primary reasons for the upswing. Also, regulatory changes and a highly competitive environment will increase expenses further. In fact, non-interest expenses have witnessed a compound annual growth rate (CAGR) of 11.5% over the last four fiscal years (2016-2019).

Moreover, a significant part of the company’s revenues comes from underwriting fees, which is dependent on the overall performance of capital markets. Though the underwriting business performed well in the past, with prevalent macro-economic issues related to the trade war and other geopolitical matters, equity and debt underwriting were hampered. Further with no substantial improvements in global conditions, Raymond James’ investment banking business is likely to suffer going ahead.

However, inorganic growth efforts as evident from the several strategic deals over the past few years and strong balance sheet have supported Raymond James’ revenues so far and this is likely to continue in the quarters ahead. Also, the company has expanded in Europe and Canada with the help of opportunistic acquisitions. Moreover, steady capital deployment activities of the company remain commendable.

Nevertheless, shares of Raymond James have rallied 6.6% over the past three months, underperforming the industry’s growth of 9.8%. Moreover, the Zacks Consensus Estimate for fiscal 2020 earnings has moved nearly 1% downward over the past 90 days, reflecting that analysts are not very optimistic regarding the company’s earnings growth potential. The company carries a Zacks Rank #4 (Sell).

Key Picks

TD Ameritrade Holding Corporation (NASDAQ:AMTD) has witnessed slight upward earnings estimate revisions for fiscal 2020 in the past 60 days. Moreover, this Zacks #2 (Buy) Ranked stock has gained 3.7% in the year-to-date period. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Morgan Stanley’s (NYSE:MS) ongoing-year earnings estimates have moved marginally north in 60 days’ time. Additionally, the stock has rallied 27.9% so far this year. It carries a Zacks Rank #2 at present.

Piper Jaffray Companies’ (NYSE:PJC) current-year earnings estimates have been revised marginally upward over the past 60 days. Further, the company’s shares have gained 21.5% in the year-to-date period. At present, it carries a Zacks Rank of 2.

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