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Strategic Buyouts & Diverse Revenues Aid Raymond James Amid Cost Woes
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Raymond James Financial Inc. (RJF - Free Report) remains well-positioned for growth on the back of opportunistic acquisitions, favorable segment performance and a solid balance sheet. However, increasing reliance on capital markets for top-line growth and high expenses are headwinds.
RJF’s Growth Drivers
Strategic Acquisitions: Raymond James has been engaged in opportunistic buyouts over the years, which led to its expansions in Europe and Canada. In fiscal 2023, the company acquired Canada-based Solus Trust Company Limited. In fiscal 2022, the company purchased SumRidge Partners, TriState Capital Holdings and U.K.-based Charles Stanley Group PLC, while in fiscal 2021, it acquired Cebile Capital and a boutique investment bank, Financo.
These deals combined with several earlier deals will likely poise RJF for future growth. Management remains optimistic about pursuing strategic deals in the future to further solidify its Private Client Group (PCG) and Asset Management segments. This May, the company entered into a partnership with Eldridge Industries to foray into private credit business.
Similarly, one of the peers of RJF, LPL Financial Holdings (LPLA - Free Report) , along with its subsidiaries LPL Financial LLC, acquired Altria Wealth Solutions, Inc. earlier this month. This move builds upon LPLA’s earlier ventures, including the acquisitions of National Planning Holdings and Waddell & Reed in 2017 and 2021, respectively.
Solid PCG Segment Performance: The majority of Raymond James’ businesses have been performing relatively well amid high competition. The PCG segment remains one of the key contributors to revenue growth. Net revenues in the segment reflected a compound annual growth rate (CAGR) of 15.9% over the last three fiscal years ended 2023. The uptrend continued during the first nine months of fiscal 2024.
In 2016, the company took over the U.S. Private Client Services unit of Deutsche Asset & Wealth Management, adding a substantial amount of client assets to the segment’s balance sheet, thereby aiding its performance. Our estimates suggest PCG segment’s net revenues to see a CAGR of 6.5% by fiscal 2026.
Strong Balance Sheet: Raymond James has a solid balance sheet position. As of June 30, 2024, the company’s total debt was $5.12 billion and cash and cash equivalents were $9.1 billion. Moreover, the company enjoys long-term investment grade ratings of A-, A3, and A- as well as a stable outlook from Fitch Ratings, Moody’s, and Standard and Poor’s, respectively.
Hence, the company’s favorable factors and earnings strength enable it to address its near-term debt obligations, even in the event of economic turmoil.
Headwinds for Raymond James
Volatile Capital Markets: The subdued performance of Raymond James’ investment banking (IB) business, which is primarily tied to the performance of the capital markets, is concerning. Though capital markets activities are gradually reviving, geopolitical and macroeconomic uncertainties and a rapidly evolving regulatory environment pose significant challenges. This will likely exert pressure on RJF’s IB performance.
The company’s IB revenues declined 4% and 41% in fiscal 2022 and fiscal 2023, respectively. Though IB revenues witnessed a 22% increase during the first nine months of fiscal 2024, RJF’s excessive reliance on IB revenues keeps us cautious as the performance of the business is driven by numerous variables including market developments, client volumes, and several geopolitical factors, which are subject to fluctuations.
These factors have affected Morgan Stanley (MS - Free Report) , one of the prominent investment banks, as well. MS’ IB revenues are unlikely to grow significantly amid volatile capital market performance.
Elevated Expenses: Raymond James’ expenses have been consistently rising over the years. The company’s non-interest expenses experienced a 10.4% CAGR over the last three fiscal years (2020-2023). The uptrend continued during the first nine months of fiscal 2024.
The rise has been primarily driven by higher compensation costs and higher bank loan loss provisions. Regulatory changes, inorganic expansionary measures and a highly competitive landscape will likely drive expenses higher in the quarters ahead. We expect total non-interest expenses to witness a CAGR of 7.2% over the next three years.
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Strategic Buyouts & Diverse Revenues Aid Raymond James Amid Cost Woes
Raymond James Financial Inc. (RJF - Free Report) remains well-positioned for growth on the back of opportunistic acquisitions, favorable segment performance and a solid balance sheet. However, increasing reliance on capital markets for top-line growth and high expenses are headwinds.
RJF’s Growth Drivers
Strategic Acquisitions: Raymond James has been engaged in opportunistic buyouts over the years, which led to its expansions in Europe and Canada. In fiscal 2023, the company acquired Canada-based Solus Trust Company Limited. In fiscal 2022, the company purchased SumRidge Partners, TriState Capital Holdings and U.K.-based Charles Stanley Group PLC, while in fiscal 2021, it acquired Cebile Capital and a boutique investment bank, Financo.
These deals combined with several earlier deals will likely poise RJF for future growth. Management remains optimistic about pursuing strategic deals in the future to further solidify its Private Client Group (PCG) and Asset Management segments. This May, the company entered into a partnership with Eldridge Industries to foray into private credit business.
Similarly, one of the peers of RJF, LPL Financial Holdings (LPLA - Free Report) , along with its subsidiaries LPL Financial LLC, acquired Altria Wealth Solutions, Inc. earlier this month. This move builds upon LPLA’s earlier ventures, including the acquisitions of National Planning Holdings and Waddell & Reed in 2017 and 2021, respectively.
Solid PCG Segment Performance: The majority of Raymond James’ businesses have been performing relatively well amid high competition. The PCG segment remains one of the key contributors to revenue growth. Net revenues in the segment reflected a compound annual growth rate (CAGR) of 15.9% over the last three fiscal years ended 2023. The uptrend continued during the first nine months of fiscal 2024.
In 2016, the company took over the U.S. Private Client Services unit of Deutsche Asset & Wealth Management, adding a substantial amount of client assets to the segment’s balance sheet, thereby aiding its performance. Our estimates suggest PCG segment’s net revenues to see a CAGR of 6.5% by fiscal 2026.
Strong Balance Sheet: Raymond James has a solid balance sheet position. As of June 30, 2024, the company’s total debt was $5.12 billion and cash and cash equivalents were $9.1 billion. Moreover, the company enjoys long-term investment grade ratings of A-, A3, and A- as well as a stable outlook from Fitch Ratings, Moody’s, and Standard and Poor’s, respectively.
Hence, the company’s favorable factors and earnings strength enable it to address its near-term debt obligations, even in the event of economic turmoil.
Headwinds for Raymond James
Volatile Capital Markets: The subdued performance of Raymond James’ investment banking (IB) business, which is primarily tied to the performance of the capital markets, is concerning. Though capital markets activities are gradually reviving, geopolitical and macroeconomic uncertainties and a rapidly evolving regulatory environment pose significant challenges. This will likely exert pressure on RJF’s IB performance.
The company’s IB revenues declined 4% and 41% in fiscal 2022 and fiscal 2023, respectively. Though IB revenues witnessed a 22% increase during the first nine months of fiscal 2024, RJF’s excessive reliance on IB revenues keeps us cautious as the performance of the business is driven by numerous variables including market developments, client volumes, and several geopolitical factors, which are subject to fluctuations.
These factors have affected Morgan Stanley (MS - Free Report) , one of the prominent investment banks, as well. MS’ IB revenues are unlikely to grow significantly amid volatile capital market performance.
Elevated Expenses: Raymond James’ expenses have been consistently rising over the years. The company’s non-interest expenses experienced a 10.4% CAGR over the last three fiscal years (2020-2023). The uptrend continued during the first nine months of fiscal 2024.
The rise has been primarily driven by higher compensation costs and higher bank loan loss provisions. Regulatory changes, inorganic expansionary measures and a highly competitive landscape will likely drive expenses higher in the quarters ahead. We expect total non-interest expenses to witness a CAGR of 7.2% over the next three years.