EUR 850.00 For Business Accounts Only

Morningstar | We Agree With Stifel's More Conservative Strategy in Uncertain Capital Markets Environment

The investment thesis for Stifel Financial over the past several years has largely played out as positively as we expected. After a slowdown in growth in 2014 and 2015 to purposely restrain its balance sheet and put off having to undertake the Dodd-Frank stress test for another year, the company has expanded its balance sheet to over $24 billion from $9.5 billion at the end of 2014. The growth of the balance sheet mainly results from the increase in deposits at the company. The deposits have shown their value through the increase in net interest income at the company and expansion of the wealth management segment’s operating margins. Stifel Financial has also resumed its acquisitive ways by bolting on Eaton Partners, ISM Capital, City Securities, and Ziegler Wealth Management.Stifel’s slight pivot toward a focus on costs and away from growth makes sense, in our opinion. The company’s corporate overhead and integration costs have weighed on reported earnings, so wringing out those expenses will be positive. Additionally, with the fairly uncertain capital markets and regulatory environment that we’re currently in, large acquisitions are arguably risky. The company also doesn’t have a lot of capacity to do large acquisitions, as it's below its previously targeted 10% Tier 1 leverage regulatory capital ratio. While we don’t foresee a large acquisition in Stifel’s future, we still believe that the company can be a beneficiary of financial advisor dislocation or a consolidator of smaller wealth management firms.