Stifel Earnings: Wealth Management at New Highs, Institutional Securities Might Be at Low for Cycle

Stifel Financial’s SF wealth management segment made a new high in quarterly net revenue, while the institutional securities business is at the lowest level since 2019. The company reported net income to common shareholders of $125 million, or $1.10 per diluted share, on $1.05 billion of net revenue. Net revenue was 5% lower than both the previous year and quarter. Wealth management segment revenue of $758 million that was 9% higher than a year ago due to net interest income bolstered results, as institutional securities segment revenue of $276 million was 33% lower. We don’t anticipate making a material change to our $81 fair value estimate for no-moat-rated Stifel and assess shares are moderately undervalued.

Wealth management revenue should remain fairly strong for the foreseeable future, while institutional securities revenue has a lot of room to rebound. Client assets of $418 billion are nearly back to their fourth quarter of 2021 high of $436 billion. Wealth management net interest income has modestly declined over the previous two quarters to $277 million from $285 million, as the net interest margin has contracted. Many banks and investment firms have similarly experienced net interest margin and net interest income contractions, as deposit funding costs have increased.

Institutional securities segment revenue is about 40% below its 2021 to 2022 quarterly average. Both investment banking and trading revenue are low, and the segment booked a $13 million loss in the quarter compared with profits of over $100 million in multiple quarters in 2021. The market has become more positive on the economy recently, and institutional securities revenue could be turning the corner soon.