Company Reports

Raymond James reported record revenue for its fiscal third quarter ended in June, but capital markets revenue hasn't materially recovered and is underperforming multiple peers. The company reported net income to common shareholders of $491 million, or $2.31 per diluted share, on $3.2 billion of net revenue. Net revenue increased 17% from a year ago and 6% sequentially, with broad-based increases across revenue lines except net interest income. We are maintaining our $132 fair value estimate for narrow moat-rated Raymond James and assess shares are fairly valued to slightly undervalued.

We are increasing our Morningstar Economic Moat Rating for Raymond James Financial to narrow from none. The main source of the company’s moat is switching costs in its wealth-management segment, which often accounts for over 65% of revenue and over 50% of pretax earnings. If we were to include the company’s customer deposits business that is related to the wealth-management business, then wealth management is responsible for over 75% of revenue and usually over 70% of pretax earnings. The wealth-management business is healthy, with about a 12% compound annual growth rate in client assets and a 4% compound annual growth rate in advisor headcount since 2010, which includes some acquisitions such as Morgan Keegan that materially added scale, Alex Brown that brought in some high-end advisors, 3Macs in Canada, and Charles Stanley in the United Kingdom. Of the company’s 8,712 affiliated advisors at the end of fiscal 2023, about 40% of the advisors are employee advisors, and 60% are independent contractor advisors. Given the general trend in the wealth-management industry to more advisors choosing the independent contractor business model, the company’s range of affiliation options provides healthy diversification.

Raymond James’s results in recent years outperformed many of its peers, as it has a relatively large and steady wealth management business, made multiple acquisitions in recent years, and booked higher net interest income as the US federal funds rate rose. While we continue to expect fairly steady growth in the company’s revenue powered by its wealth management business, its revenue and earnings growth could underperform peers over the next several years. If we assume a soft landing to the US economy, investment banks will experience a large bounce back in profits from depressed 2023 levels. Raymond James has less exposure to a rebound in investment banking activity with its capital markets business historically being less than 20% of revenue.

Raymond James reported record revenue for its fiscal second quarter (ended March 2024) from record client assets, even as capital markets revenue continues to try to gain traction in the current environment. The company reported second-quarter net income to common shareholders of $474 million, or $2.22 per diluted share, on $3.1 billion of net revenue. The firm's top line increased 9% from a year ago and 3% sequentially, with much of the revenue increase coming from asset-management fees. Raymond James had a record $1.4 trillion of client assets under administration.

Raymond James reported decent results for its fiscal first quarter ending in December, and similar to other wealth management firms and investment banks, its 2024 results will be affected by the generally offsetting trends of net interest income and capital markets revenue. The company reported net income to common shareholders of $497 million, or $2.32 per diluted share, on $3 billion of net revenue. Net revenue increased 8% from the previous year, as mainly a 13% increase in asset management revenue with more minor contributions in other revenue lines offset a 7% decline in net interest income. We are currently maintaining our $118 fair value estimate for no-moat-rated Raymond James and assess shares are fairly valued.

Raymond James’s results in recent years outperformed many of its peers, as it has a relatively large and steady wealth management business, made multiple acquisitions in recent years, and booked higher net interest income as the U.S. federal funds rate rose. While we continue to expect fairly steady growth in the company’s revenue powered by its wealth management business, its revenue and earnings growth could underperform peers over the next several years. If we assume a soft landing to the U.S. economy, investment banks will experience a large bounce back in profits from depressed 2023 levels. Raymond James has less exposure to a rebound in investment banking activity with its capital markets business historically being less than 20% of revenue.

Raymond James reported record annual results, helped by acquisitions done in 2022 and better business mix. The company reported net income available to common shareholders for the fiscal year of $1.7 billion, or $7.97 per diluted share, on $11.6 billion of net revenues. Net revenue for the fourth quarter increased 8% from the previous year and 5% sequentially, with the increase coming mainly from asset-management fees and interest-rate-related revenue. We don't plan to make a material change to our $116 per share fair value estate for no-moat-rated Raymond James and assess the shares as being slightly undervalued.

Raymond James’ earnings are holding up better than many peers' due to the contribution from multiple acquisitions in 2022 and a larger portion of its business being wealth management. The company reported net income to common shareholders of $369 million, or $1.71 per diluted share, on $2.9 billion of net revenue. The company actually booked records for net revenue and client assets in the quarter. Record net revenue ($2.2 billion) and client assets ($1.28 trillion) in the wealth management segment, led to overall record quarterly revenue for Raymond James. Reported earnings were a bit weighed down by $65 million of legal and regulatory provisions. We don’t anticipate making a material change to our $116 fair value estimate for no-moat-rated Raymond James and assess shares are fairly valued.

Raymond James’ revenue and earnings will hold up better over the near to medium term compared with more pure-play investment banks, thanks to a combination of acquisitions, interest rates, and a relatively large wealth-management business. Over 80% of Raymond James’ net revenue comes from relatively more stable wealth management, asset management, and traditional banking, with usually less than 20% coming from capital markets. 2021 capital markets revenue was abnormally high and will likely continue to reset lower over the next year. Given Raymond James’ relatively lower proportion of capital markets revenue, its companywide revenue should hold up better than many other firms'. Raymond James’ bank will also receive a boost from rising interest rates. The company as a whole will benefit from multiple acquisitions, such as Charles Stanley, TriState Capital, and SumRidge Partners.

Raymond James Financial reported record quarterly net revenue for its second fiscal quarter ending in March, but there were signs of caution and slowing growth. The company reported net income to common shareholders of $425 million, or $1.93 per diluted share, on $2.87 billion of net revenue. Net revenue increased 7% from a year ago and 3% sequentially, as net interest income offset declines in investment banking, brokerage, and asset management fees from a year ago. There have been broad-based declines in revenue at Raymond James and its peers in investment banking revenue and asset management revenue because of uncertainty in the economic outlook and lower equity and fixed income market prices from a year ago. We don't anticipate making a material change to our $111 fair value estimate for no-moat-rated Raymond James and we assess shares are moderately undervalued.

Most of the issues that affected Silicon Valley Bank don’t apply to the wealth management firms and investment banks that we cover, so we don’t plan to make material changes to our fair value estimates or Morningstar Economic Moat Ratings for Morgan Stanley, Goldman Sachs, Ameriprise Financial, Raymond James Financial, LPL Financial, Stifel Financial, Evercore Group, or Lazard.

Net interest income should remain a bright spot for Raymond James in the near term, as capital markets revenue remains challenged. The company reported record net income to common shareholders of $507 million, or $2.30 per diluted share, on $2.8 billion of net revenue. Net revenue was close to flat from a year ago, while net income increased 14%. Most of the improvement on net income is from a $398-million, or 212% increase, in the company’s net interest income; and a $120-million, or about 700% increase, in third-party bank fees that come with high operating margins. We maintain our $111 fair value estimate for no-moat Raymond James and assess shares are fairly valued.

Raymond James’ revenue and earnings will hold up better over the near to medium term compared with more pure-play investment banks, thanks to a combination of acquisitions, interest rates, and a relatively large wealth-management business. Over 80% of Raymond James’ net revenue comes from relatively more stable wealth management, asset management, and traditional banking, with usually less than 20% coming from capital markets. 2021 capital markets revenue was abnormally high and will likely continue to reset lower over the next year or so. Given Raymond James’ relatively lower proportion of capital markets revenue, its companywide revenue should hold up better than many other firms'. Raymond James’ bank will also receive a boost from rising interest rates. The company as a whole will benefit from multiple acquisitions, such as Charles Stanley, TriState Capital, and SumRidge Partners.

We are increasing our fair value estimate for no-moat Raymond James Financial to $111 per share from $100, which implies a forward price/earnings ratio of about 8.5 times and a price/book ratio of 2.5 times. Of the net $11 increase in our fair value estimate, about $5 is for earnings since our previous valuation update, $2 is for changes in our revenue forecast, and $4 is from an increase in our long-run operating margin assumption. We assess shares are currently fairly valued.

Raymond James' large wealth management and related banking business are leading to outperformance compared with peers. The company reported net income to common shareholders of $437 million, or $1.98 per diluted share, on a record $2.8 billion of net revenue for its fourth fiscal quarter ended in September. Over 75% of the company's net revenue is from its wealth management and banking businesses that benefit from rising interest rates, so the disruption in the economy affecting capital markets has had only a moderate effect on total revenue. We don't anticipate making a material change to our $100 fair value estimate for no moat-rated Raymond James Financial and assess shares are fairly valued.

Raymond James Financial recently completed several acquisitions, and results are starting to show the benefits of these acquisitions and interest rates. The company reported net income to common shareholders of $299 million, or $1.38 per diluted share, on $2.7 billion of net revenue for its fiscal third quarter. Net revenue increased 10% from the previous year and 2% sequentially, with the latter increase from interest-rate-related revenue streams. Operating margin decreased to 15.3%, from recent levels in the upper teens to a little over 20%, due to loan-loss provisioning and negative operating leverage in the capital markets segment. We are maintaining our $100 fair value estimate for no-moat Raymond James and assess the shares as fairly valued.

Many investment service firms (wealth managers, retail brokerages, custody banks, and asset managers) have material exposure to interest rates. Clients at wealth management firms and retail brokerages typically have 5%-20% of their account balance in cash that the financial institution sweeps into a bank subsidiary. The deposits are then used to make loans or invest in fixed-income securities. They may also earn asset management or distribution fees on client assets in money market funds.

Raymond James’ revenue and earnings will hold up better over the near to medium term compared with more pure-play investment banks, thanks to a combination of acquisitions, interest rates, and a relatively large wealth-management business. Over 80% of Raymond James’ net revenue comes from relatively more stable wealth management, asset management, and traditional banking, with usually less than 20% coming from capital markets. 2021 capital markets revenue was abnormally high and will likely continue to reset lower over the next year or so. Given Raymond James’ relatively lower proportion of capital markets revenue, its companywide revenue should hold up better than many other firms'. Raymond James’ bank will also receive a boost from rising interest rates. The company as a whole will benefit from multiple acquisitions, such as Charles Stanley, TriState Capital, and SumRidge Partners.

Compared with more pure-play investment banks, Raymond James’s revenue and earnings will hold up better from a combination of acquisitions, interest rates, and a relatively large wealth management business. The company reported net income of $323 million, or $1.52 per diluted share, on $2.7 billion of net revenue. Net revenue increased 13% from a year ago, primarily from higher client assets and asset management revenue, but sequentially decreased 4%, primarily from a 45% decline in investment banking revenue. Net income decreased 9% from the previous year and 28% sequentially with much of the decline related to the company’s capital markets business. We don’t anticipate making a significant change to our $99 fair value estimate for no-moat Raymond James.

Raymond James reported multiple records in its fiscal first quarter ending in December, and continued strength in capital markets and interest rates will be major swing factors to earnings over the next one to two years. The company reported record quarterly net income of $446 million, or $2.10 per diluted share, on record net revenue of $2.78 billion. Net revenue increased 25% from a year ago, as client assets grew 23% to $1.26 trillion and capital markets revenue grew 36% to $614 million. We are maintaining our fair value estimate for no-moat Raymond James of $99 and believe shares are fairly valued.