Wednesday, FBR Capital Markets upgraded Raymond James Financial Inc. (RJF) shares to Outperform from Market Perform and increased its price target to $32 from $27. The brokerage maintained its 2010 EPS estimate of $1.80, and its 2011 estimate of $2.15.
Analyst Steve Stelmach upgraded the stock to Outperform, and increased his price target to $32 from $27, to better incorporate the embedded operating leverage of the franchise. Revenue on a per-advisor basis remains significantly below 2006 and 2007 levels but is on an upward trend and, the analyst believes, will be enhanced by positive operating leverage in the private client segment.
Furthermore, efforts to recruit higher producers, and cull lower-producing financial advisors, should push average production, on a per-advisor basis, and operating margins toward previous highs. The analyst continues to have concerns over bank credit, both the Shared National Credit and residential mortgage exposures, and the outstanding auction-rate securities problem.
However, after balancing these headwinds against the embedded earnings potential of the brokerage franchise, the risk/reward supports an improved valuation, in the analyst's view. The analyst feels comfortable with his above-consensus estimate for 2010, and he believes under-improving market conditions, and even his estimates, could prove conservative.
Currently, RJF is up $0.57 or 2.16% and trading at $26.93.
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