IB & Trading to Aid Raymond James' Q2 Earnings, High Costs to Hurt

Raymond James RJF is scheduled to announce second-quarter fiscal 2025 (ended March 31) results on April 23, after market close. The company’s earnings and revenues are expected to have witnessed a rise on a year-over-year basis.

In the last quarter, RJF’s earnings beat the Zacks Consensus Estimate. Results benefited from robust investment banking (IB) and brokerage performance in the Capital Markets segment. The performance of the Private Client Group and Asset Management segments was also solid. The acquisitions over the past years supported the company’s financials. However, higher non-interest expenses acted as a headwind.
 
Raymond James has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate thrice in the trailing four quarters and missed once, with the average beat being 7.75%.

Raymond James Financial, Inc. Price and EPS Surprise

Raymond James Financial, Inc. price-eps-surprise | Raymond James Financial, Inc. Quote

The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings is pegged at $2.44, which has remained unchanged over the past seven days. The figure indicates growth of 5.6% from the year-ago quarter.

The consensus estimate for sales of $3.43 billion suggests 9.9% year-over-year growth.

Key Performance Drivers for Raymond James’ Q2 Earnings

IB Fees: Global mergers and acquisitions (M&As) in the first quarter of 2025 were less impressive than previously expected. Deal value and volume rose marginally during the quarter, mainly led by the Asia Pacific region.

Ambiguity over the tariff policies and ensuing trade war resulted in extreme market volatility. These led to economic uncertainty, with data indicating a slowdown in the U.S. economy and rising inflationary pressure. Hence, amid such a backdrop, companies started rethinking their M&A plans despite stabilizing rates and having significant investible capital.

Also, the IPO market saw signs of cautious optimism, given the market volatility, geopolitical challenges and rising flotation costs. The equity market performance drove some decent activity in follow-up equity issuances. Nonetheless, bond issuance volume was strong on solid investor demand and tighter spreads, but uncertainties continue to persist due to a tough macroeconomic environment. Thus, RJF’s underwriting fees are expected to have been positively impacted in the quarter.

The consensus estimate for IB fees is pegged at $255.8 million, suggesting a 42.9% jump on a year-over-year basis. We anticipate IB fees to be $253.1 million.

Trading Revenues: Client activity and market volatility were robust in the March-ended quarter. The likelihood of a trade war, sticky inflation and higher-for-longer interest rates alongside recessionary fears drove client activity. Further, volatility was high in equity markets and other asset classes, including commodities, bonds, and foreign exchange. So, Raymond James’ trading revenues are likely to have witnessed solid growth.

Net Interest Income (NII): The Federal Reserve kept interest rates unchanged at 4.25%-4.5% during the quarter due to persisting inflation and uncertainties regarding the impact of tariff policies. This is likely to have had a favorable impact on RJF’s NII to some extent, with higher yields being partially offset by higher funding costs.

Further, the yield curve steepened during the quarter, which is likely to have supported NII on the back of improved yields on loans and securities. Lending activities improved in the to-be-reported quarter as per the Fed’s latest data.

The Zacks Consensus Estimate for interest income stands at $993.1 million, indicating a decline of 5.3%. Our estimate for the metric is $1.01 billion.

Management anticipates aggregate NII and Raymond James Bank Deposit Program (RJBDP) third-party fees to be down 2-3% sequentially due to two fewer billing days in the second quarter of fiscal 2025.

Expenses: Raymond James consistently hires advisors and invests in franchises. Thus, overall expenses are expected to have increased in the to-be-reported quarter. Due to a highly competitive environment and inflationary pressure, expenses are likely to have risen.

We project total non-interest expenses to be $2.75 billion, implying a 9.6% year-over-year increase.

RJF’s Outlook for Q2

Management expects asset management and related administrative fees to decline nearly 2% from the prior quarter.

What the Zacks Model Unveils for Raymond James

According to our proven model, the chances of Raymond James beating the Zacks Consensus Estimate this time are low. This is because it lacks the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Raymond James is 0.00%.

Zacks Rank: The company currently has a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Finance Stocks Worth a Look

Here are a couple of finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:

The Earnings ESP for Synchrony Financial SYF is +1.29%, and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 22. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Over the past seven days, the Zacks Consensus Estimate for SYF’s quarterly earnings has remained unchanged at $1.66 per share.

Ameriprise Financial, Inc. AMP is scheduled to release first-quarter 2025 numbers on April 24. The company has an Earnings ESP of +0.04% and carries a Zacks Rank #3 at present.

Quarterly earnings estimates for AMP have been revised marginally downward to $9.12 per share over the past week.

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This article originally published on Zacks Investment Research (zacks.com).

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