A Resilient Growth Blueprint Ignites Asset Surge And Capital Market Gains

Key Takeaways

• Strong recruitment and asset growth suggest potential increases in future revenue, earnings, and client assets for Raymond James Financial.
  
• Healthy M&A and capital investments position the firm for improved efficiency, profitability, and long-term earnings growth.
  
• Economic and operational challenges, including natural disasters, advisor retention issues, and interest rate sensitivity, may impact revenue growth and profitability.

Catalysts

A diversified financial services company, provides private client group, capital markets, asset management, banking, and other services to individuals, corporations, and municipalities in the United States, Canada, and Europe.

• Raymond James Financial is seeing robust recruiting activity, with a strong pipeline of large teams joining the firm, indicating potential for future growth in client assets, which could positively impact revenue and earnings.
  
• The firm anticipates a positive impact from rising assets in fee-based accounts, expecting asset management and related fees to grow by approximately 6%, which would enhance future revenue streams and potentially improve net margins.
  
• Capital Markets segment showed significant improvement, driven by increased M&A activity, and the firm remains optimistic about its healthy pipeline, which could lead to higher transaction-based revenues, benefiting earnings.
  
• The Asset Management segment is expected to grow alongside Private Client Group's strong asset growth, combined with efforts from Raymond James Investment Management to drive further growth, positively impacting revenue and profitability.
  
• The firm is in a strong capital position, enabling continued investments in technology and business growth, which could drive long-term improvements in efficiency and profitability, enhancing net margins and earnings.

Raymond James Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raymond James Financial's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.1% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $2.4 billion (and earnings per share of $11.84) by about October 2027, up from $2.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2027 earnings, up from 14.7x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Raymond James Financial Future Earnings Per Share Growth

Risks

• The impact of hurricanes Helene and Milton caused significant disruption in the Southeast, leading to power outages, property damage, and evacuation challenges, which could negatively impact business operations and result in increased expenses, potentially affecting net margins.
  
• The transfer of $3 billion of client assets from certain OSJ relationships in the independent contractor division may signal dissatisfaction or competitive pressure, risking revenue retention and advisor stability within the platform.
  
• Sensitivity to interest rate cuts, as highlighted by the decreased net interest margin and expected decline in net interest income, could impact the bank segment's revenue growth and earnings.
  
• Ongoing challenges in recruiting and integrating advisors, despite robust advisor growth and retention efforts, may strain resources and lead to increased compensation or operational expenses, affecting earnings.
  
• Potential economic factors or unforeseen regulatory developments, as mentioned in the forward-looking statements, could disrupt strategic objectives or market conditions, potentially impacting long-term revenue growth and profitability.

Valuation

• The analysts have a consensus price target of $146.07 for Raymond James Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $15.8 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $149.02, the analyst's price target of $146.07 is 2.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.