Capital market stocks have delivered stellar returns over the past year, driven by a record number of IPOs and SPACs. While most companies in the sector have witnessed a decline in interest income due to near-zero benchmark interest rates, the rising demand for investment banking services has offset this loss. This is evidenced by the Vanguard Financials ETF’s (VFH) 70.5% gains over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 49.5% returns.
With the stock markets maintaining their bull run, fueled by a faster-than-expected economic recovery, financial services companies are expected to grow significantly in the coming months. As investors continue investing heavily in the stock markets, the global financial services market is expected to grow 9.9% year-over-year to $22.52 trillion in 2021.
With the recent Archegos margin call negatively affecting some of the biggest multinational investment banks, it could be wise now to bet on lesser known companies, such as Raymond James Financial, Inc (RJF), Stifel Financial Corporation (SF), and Lazard Ltd. (LAZ) that possess enormous growth potential.
Raymond James Financial, Inc. (RJF)
RJF is a financial holding and services company operating though five segments—Private Client Group, Capital Markets, Asset Management, RJ Bank and Other. The company underwrites and distributes equity and debt securities across the U.S., Canada, and Europe. It also provides institutional sales and trading, asset management and investment banking services. Shares of RJF have gained 114% over the past year, and 35.6% year-to-date.
RJF’s net revenue increased 11% year-over-year to $2.20 billion for its fiscal year 2020 first quarter ended Dec 31. This can be attributed to a 96% rise in investment banking revenues to $255 million. Its net Income increased 16.4% from the same period last year to $312 million. The company’s EPS rose 18% from its year-ago value to $2.23.
RJF’s monthly client assets under administration has increased 24% year-over-year in February 2021 to a record of $1.06 trillion. Its net loans increased 4% from the prior year to $22.30 billion, while its domestic cash sweep balances rose 61% from the year-ago value to $62.50 billion in February.
RJF is currently buying back approximately $750 million worth outstanding senior notes, using proceeds from its senior notes offering in March to do so. This move is expected to reduce the company’s interest burden significantly because s the newly issued debt bears a lower interest rate than its previously issued senior notes it is redeeming.
A consensus EPS estimate of $2.18 for the first quarter, ended March 2021, represents an 81.7% improvement year-over-year. Also, the company beat the Street’s EPS estimates in three out of trailing four quarters. Analysts expect RJF’s revenues to rise 10.9% from the same period last year to $2.29 billion for the about-to-be-reported quarter.
RJF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment. It is ranked #8 of 24 stocks in the A-rated Investment Brokerage industry. We have also graded RJF for Momentum, Value, Quality, Growth and Stability. Click here to access all RJF’s ratings.
Stifel Financial Corporation (SF)
SF is a financial services and bank holding company that operates in the United States, Europe, and Canada. Specializing in retail and institutional wealth management and investment banking, SF operates through three segments—Global Wealth Management, Institutional Group, and Other.
SF’s non-GAAP net revenues increased 12.2% year-over-year to $1.06 billion for the fourth quarter ended December 31, 2020. Its non-GAAP net income of $195.05 million represents a 33.1% rise from the same period last year. Its non-GAAP EPS came in at $1.67, up 32.5% from its year-ago value.
On February 19, SF acquired the future business of North Atlantic Corporation, making SF the active manager of small business investment corporations and venture capital funds. The move increases SF’s client base significantly because the company has unrestricted access to high-growth, North Atlantic portfolio companies.
In March, SF announced the rebranding of its subsidiary Century Security Associates, Inc. to Stifel Independent Advisors. Through this rebranding, SF aims to market its independent advisor services, thereby appealing to a new target customer base.
The Street expects SF’s EPS to rise 73.8% in the fiscal first quarter ended March 2021 to $1.39. The company has an impressive earnings surprise history also; it beat consensus EPS estimates in three out of trailing four quarters. SF’s revenues are expected to rise 17.7% from the same period last year to $1.07 billion in the last quarter. The stock has gained 163.6% over the past year.
SF has an overall rating of B, which equates to Buy in our POWR Ratings system. The stock has a B grade for Stability, Sentiment, & Quality. In total, we rate SF on eight different levels. Beyond what we’ve stated above, one can check out additional SF Ratings for Value, Momentum, and Growth here.
SF is ranked #6 in the same industry.
Lazard Ltd. (LAZ)
Headquartered in Bermuda, LAZ is a financial advisory and asset management firm with an international market presence. Operating through two segments (Financial Advisory and Asset Management), LAZ offers a range of investment banking, management and asset allocation strategy solutions to institutional and retail investors.
LAZ is currently aiming to partake in the current special purpose acquisition company (SPAC) frenzy. It is backing the IPO of two blank check companies, Lazard Fintech Acquisition I and Lazard Healthcare Acquisition I, which are expected to raise at least $500 million combined. LAZ had previously backed Lazard Growth Acquisition I’s IPO in February. With the goal of expanding into some of the most profitable industries, including fintech and healthcare, LAZ is expected to generate significant returns from the shell companies provided they merge with a promising company.
LAZ reported total operating revenue of $849 million for the quarter ended December 31, 2020, up 20% year-over-year. This can be attributed to a 29% rise in revenues from the Financial Advisory segment, and 12% rise in revenues from the Asset Management segment. Its adjusted net income rose 83% from the same period last year to $192 million, while its EPS improved 82% from the prior-year quarter to $1.66.
Analysts expect LAZ’s EPS to rise 51.7% year-over-year in the about-to-be-reported quarter, ending March 2021 to $0.88. The company surpassed the Street’s EPS estimates in three out of trailing four quarters. A consensus revenue estimate of $656.37 million for the fiscal first quarter ended March 2021 represents a 16.6% rise from the same period last year. The stock has gained 73.1% over the past year.
It’s no surprise that LAZ has an overall B rating, which equates to Buy in our proprietary rating system. The stock has a B grade for Quality. Click here to view additional ratings for LAZ (Growth, Value, Momentum, Sentiment and Stability).
LAZ is ranked #7 in the Investment Brokerage industry.
The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
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RJF shares were trading at $128.96 per share on Monday afternoon, down $0.80 (-0.62%). Year-to-date, RJF has gained 35.78%, versus a 11.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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