An Underfollowed Financial Favorite: Raymond James

03/07/2018 5:00 am EST

Focus: FINANCIALS

Richard Moroney

Editor, Dow Theory Forecasts

Raymond James Financial (RJF) doesn’t have the name recognition of the largest financial firms, but it’s bigger than you realize, asserts Richard Moroney, editor of Dow Theory Forecasts.

At the end of December, the company had $727 billion in client assets at the financial-planning unit, up 18% from a year ago. Tack on another $130 billion in financial assets under active management, and you’re looking at a company collecting a slice of more than $850 billion.

That growth in assets has translated into operating growth. In the December quarter, revenue jumped 16% to $1.73 billion, while adjusted net income increased 35% to $239 million. The most recent quarter was just the latest stage in a multiyear growth run.

Over the last three years, Raymond James grew sales at an annualized rate of 10%, while per-share profits rose at an 18% annual clip. Analysts expect the growth to keep coming.

While some brokerages have cut back on recruitment, Raymond James boosted its number of financial advisers above 7,500 in the last quarter and continues to aggressively seek out new talent.

That commitment to hiring boosts our confidence in the company’s ability to meet aggressive consensus growth targets that continue to rise; the company topped analyst profit targets by 29% in the December quarter and issued encouraging guidance.

The company operates in four business segments:

* The private-client group (68% of net revenue in fiscal 2017) focuses on financial planning, including the sale of insurance, annuities, and mutual funds. This unit generates nearly four-fifths of its revenue from recurring fees rather than transaction-based commissions, making the stream steadier than the traditional brokerage business.

* Capital markets (16%) provide investment-banking and research services to corporate clients. This is Raymond James’ most volatile business unit, with revenue coming in chunks, at inconsistent intervals.

* The company’s asset-management segment (7%) manages portfolios for individual and institutional clients and sponsors a family of mutual funds.

* RJ Bank (9%) serves mostly business clients. Commercial, industrial, and real-estate loans account for about half of the unit’s assets, versus just 15% for residential mortgages. In the December quarter, revenue rose 20%, powered by loan growth of 12%.

Raymond James stock trades at 13 times projected 2018 earnings, 6% below the median for S&P 1500
investment banking & brokerage companies.

That price doesn’t fully reflect Raymond James’ strong operating momentum, or the effect of the Federal Reserve’s interest-rate hike in December, which the company says has provided “significant tailwinds.”

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