Our Advice? Buy Raymond James

2/24/2014


  Recent Price
$52
  Dividend
$0.64
  Yield
1.2%
  P/E Ratio
17
  Shares (millions)
143
  52-Week Price Range
$56.31 - $39.31

Taken public in 1983, Raymond James Financial ($52; RJF) has turned a profit in more than 100 straight quarters — an impressive track record given the massive waves that occasionally upend capital markets. More than 50% of the company's revenue is recurring, which provides visibility and limits the volatility of quarterly results.

Three trends — a strong stock market, rising interest rates, and increased corporate mergers-and-acquisitions activity — should set up the company for a strong run in the coming year. Raymond James is a Buy and a Long-Term Buy.

Business breakdown

Raymond James, a diversified investment bank, generates more than 90% of its revenue in the U.S., with the balance coming from Canada and Europe. Securities commissions and fees, primarily from the financial-advisory unit, accounted for about two-thirds of revenue in the 12 months ended December. Account-servicing fees and net interest revenue each contributed 8% of sales. The company also collects investment-advisory fees (7% of sales) from portfolios it manages for individual and institutional investors. The majority of revenue from investment banking (6%) comes from equity underwriting and acquisition fees. Trading generates less than 1% of revenue.

The firm's financial advisers manage $423 billion for about 2.5 million client accounts. Raymond James also makes corporate, residential, and consumer loans, exposing the company to interest-rate and credit trends. It uses a portion of cash deposits from client accounts to fund these loans, and a rise in interest rates should make this practice more profitable.

Results also hinge on corporate confidence, which seems to be improving. The volume of U.S. mergers and acquisitions more than tripled in January, according to Thomson Reuters, after rising 11% in 2013. The U.S. had 230 initial public offerings last year, the most since 2007. IPO activity could accelerate this year as private-equity firms cash in on the stock market's rally by divesting businesses.

In April 2012, Raymond James bought rival Morgan Keegan in a $1.18 billion deal. Raymond James has made just a handful of major acquisitions in its history, with Morgan Keegan the biggest, adding more than 900 advisers and $80 billion in client assets. Raymond James dangled incentive packages to keep Morgan Keegan advisers in place, temporarily elevating costs. The strategy worked, and the company has retained 95% of the advisers who received offers. With the deal now complete, profit margins seem poised to expand.

The consensus expects profits to rise 11% to $3.27 per share on 7% revenue growth in fiscal 2014 ending September. Raymond James says it will consider deals in Canada or the U.K to augment organic growth. Shares trade at 16 times estimated earnings for fiscal 2014, a 21% discount to the average for S&P 1500 investment banking and brokerage stocks. The stock's trailing P/E ratio of 17 is 7% higher than its five-year average but 17% below its peer-group average.

An annual report for Raymond James Financial is available at 880 Carillon Parkway, St. Petersburg, FL 33716; (727) 567-1000; www.raymondjames.com.

RAYMOND JAMES FINANCIAL

Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '13
0.81
vs.
0.61
6%
52.47
-
40.01
18 - 14
Sep '13
0.93
vs.
0.69
5%
45.55
-
41.11
17 - 16
Jun '13
0.65
vs.
0.64
2%
46.73
-
39.31
18 - 15
Mar '13
0.68
vs.
0.64
29%
48.22
-
39.23
19 - 15
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
4.57
2.95
0.55
48.22
-
36.26
16 - 12
2012
3.90
2.51
0.52
38.95
-
23.16
16 - 9
2011
3.40
2.39
0.50
39.68
-
24.16
17 - 10
2010
2.98
1.83
0.44
31.25
-
21.95
17 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
72
79
61
48
97
61

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com