New Advisor Hires And AI Will Shape Future Success

Key Takeaways

• Successful recruitment and strategic focus on high-net-worth clients are expected to drive future revenue growth and strengthen long-term revenue streams.
  
• Investment in AI capabilities and strong loan growth may enhance operational efficiencies, improve net margins, and positively impact future earnings.
  
• Heightened market and interest rate uncertainties, competitive M&A landscapes, and tech investment risks could negatively affect revenue growth, profitability, and net margins.

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' successful recruiting of financial advisors with high trailing production and assets from other firms has bolstered client assets under administration, which is expected to drive future revenue growth through increased client assets and new business inflows.
  
• The establishment of a Chief AI Officer role highlights Raymond James' investment in artificial intelligence to enhance financial professional capabilities and client service, potentially improving net margins through increased operational efficiencies.
  
• The bank segment's strong loan growth, particularly in securities-based lending, coupled with high credit quality, suggests potential increases in net interest income and margins, contributing positively to future earnings.
  
• Consistent share repurchases, underpinned by strong capital and liquidity positions, indicate a commitment to enhancing shareholder value through EPS growth, alongside maintaining capacity for strategic acquisitions that align with cultural and financial goals.
  
• The strategic focus on providing comprehensive private investment alternatives to high-net-worth clients through a robust platform is poised to attract more high-value clients, potentially increasing fee-based revenues and strengthening long-term revenue streams.

Raymond James Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raymond James Financial's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.0% today to 15.7% in 3 years time.
• Analysts expect earnings to reach $2.5 billion (and earnings per share of $12.51) by about May 2028, up from $2.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from 13.3x today. This future PE is lower than the current PE for the US Capital Markets industry at 25.0x.
• Analysts expect the number of shares outstanding to decline by 2.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.5%, as per the Simply Wall St company report.

Raymond James Financial Future Earnings Per Share Growth

Risks

• Heightened market uncertainty and volatility associated with tariff negotiations could negatively impact investment banking closings, leading to reduced revenue from this segment.
  
• Market and interest rate uncertainty pose challenges to the fixed income market, which could unfavorably impact brokerage revenues and related earnings.
  
• Increased client caution due to macroeconomic uncertainty may impact net new asset growth and thus lower overall revenue growth.
  
• Competitive M&A landscapes may pressure Raymond James to stretch on valuations, affecting profitability and capital allocation efficiency.
  
• The firm's commitment to significant investment in technology, such as AI, though potentially beneficial, presents risks around overspending without clear short-term financial returns, impacting net margins.

Valuation

• The analysts have a consensus price target of $152.5 for Raymond James Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $175.0, and the most bearish reporting a price target of just $126.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.0 billion, earnings will come to $2.5 billion, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 7.5%.
• Given the current share price of $141.12, the analyst price target of $152.5 is 7.5% higher. 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.