Morningstar | Raymond James Has Decent Fiscal 4Q Earnings, but Growth May Be Harder To Achieve
Raymond James reported decent fiscal fourth-quarter results, but growth at the company and its peers appears to be slowing. Reported net income to common shareholders of $263 million (or $1.76 per diluted share) was derived from $1.9 billion of net revenue during the company's fourth quarter. Sequentially, net revenue increased 3.4%, as there was a pop in investment banking results, which is fairly normal in the firm's fiscal fourth quarter, and total client assets under administration increased 4.8% to $790.4 billion from $754.3 billion. We don't anticipate making a material change to our $96 per share fair value estimate for no-moat Raymond James Financial, believing the company's shares to be fairly valued to modestly undervalued.Many of the themes we remarked on last quarter for Raymond James continue to play out. The company's financial advisor recruiting remains strong, with headcount increasing 6.4% from the previous year to a record 7,813. The firm's $790.4 billion of client assets under administration were also a record. Since over 80% of Raymond James' revenue is driven by the wealth management business (either directly or indirectly), advisor headcount and client assets are key metrics that generally paint a picture of future results.
That said, investment security valuations have recently declined and increasing skepticism of equity market valuations appear to have been priced into the shares of financial-sector firms with significant asset-based fee streams, like Raymond James. Additionally, low cash balances among clients and increasing deposit costs are restricting net interest income, which had been a significant earnings growth driver the past several years, with the company's bank subsidiary seeing a 3 basis point decline in net interest margin sequentially. While we remain modestly positive about Raymond James' valuation, asset valuations and interest income growth have become harder to come by.
Raymond James Financial is a bank holding company and financial holding company. Through its subsidiaries, the company is engaged in financial services activities. The company's segments include: Private Client Group, which provides financial planning and securities transaction services through a branch office network; Capital Markets, which conducts institutional sales, securities trading, equity research, investment banking and the syndication and management of investments that qualify for tax credits; Asset Management, which provides portfolio management and related administrative services for retail and institutional clients; and Raymond James Bank, N.A., which provides loans such as corporate loans.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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