On Jun 24, 2013, we downgraded our long-term recommendation on Raymond James Financial, Inc. (RJF) to Underperform from Neutral. This was based on lower-than-expected fiscal second-quarter (ended Mar 31) results.
Why the Downgrade?
Raymond James’ earnings per share lagged the Zacks Consensus Estimate. Increased expenses were the primary dampener for the quarter, but the company witnessed improved top line. Notably, growth in assets under management (AUM) and assets under administration were among the positives.
Further, estimates over the past 60 days have been declining, with the Zacks Consensus Estimate for fiscal 2013 going down 9.4% to $2.78 per share. Moreover, for fiscal 2014, the Zacks Consensus Estimate declined fell 7.7% to $3.37 over the same time frame. Hence, with the estimates for both the years falling, Raymond James now has a Zacks Rank #4 (Sell).
Other Areas of Concern
Mounting operating expenses is another cause of concern for Raymond James. Due to acquisitions and a rise in compensation expenses, non-interest expenses are expected to increase further, thereby exerting additional pressure on the bottom line.
Moreover, Raymond James is yet to successfully expand its footprint globally. Though it does have operations outside the U.S., these are lesser in proportion. Hence, the sluggish economic recovery and low interest-rate environment in the U.S. could impact its financials.
Other Stocks Worth Considering
While we prefer to avoid Raymond James, other better performing investment brokers include Investment Technology Group Inc. (ITG) and Ladenburg Thalmann Financial Services Inc. (LTS) – with a Zacks Rank #1 (Strong Buy) as well as GAIN Capital Holdings, Inc. (GCAP) – a Zacks Rank #2 (Buy).
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