Buy Raymond James Ahead of Earnings, 56% Upside to Stock in Bull Case: Morgan Stanley

Morgan Stanley recommends buying Raymond James Financial ahead of the fiscal first quarter 2021 earnings scheduled for January 27 and said their forecast is at least 9% and 7% above consensus for F1Q21 and  F2021, respectively, and there is more potential upside if additional cost savings and capital deployment come through.

“With markets up 12% in 4Q20, and a vaccine rollout solidifying the V-shaped recovery, we expect revenue growth accelerates from 3% y/y in F2020 to 7% in F2021. We expect Raymond James Financial (RJF) can grow client assets 17.5% y/y in F2021, which includes 6.5% net new money growth and 11% market appreciation,” noted Manan Gosalia, equity analyst at Morgan Stanley.

“RJF has had a strong year in recruiting, and we expect its scale, technology platform, and advisor-first business model will continue to drive strong recruiting activity across all advisor channels, bringing in more client assets. We also believe the drag from lower rates is behind us, with rising earning assets growth offsetting NIM decline to keep Net Interest Income relatively stable at $155-160M a quarter.”

Morgan Stanley gave a base target price of $125 with a high of $156 under a bull scenario and $65 under the worst-case scenario. The firm currently has an “Overweight” rating on the financial holding company’s stock.

Other equity analysts also recently updated their stock outlook. ValuEngine raised Raymond James from a sell rating to a hold rating. JMP Securities increased their price objective to $89 from $86 and gave the company a market outperform rating. Zacks Investment Research cut shares to a hold rating from a buy rating and set a $79 price objective.

In addition, Credit Suisse Group boosted their target price to $83 from $80 and gave the stock a neutral rating. At last, Smith Barney Citigroup upgraded from a neutral rating to a buy rating and raised their price target to $112 from $87.

Seven analysts who offered stock ratings for Raymond James Financial in the last three months forecast the average price in 12 months at $107 with a high forecast of $125 and a low forecast of $83. The average price target represents a 7.01% increase from the last price of $99.99. From those seven equity analysts, five rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Raymond James Financial’s shares closed about 6% higher at $99.99 on Wednesday; however, the stock is rose about 7% in 2020.

“Raymond James Financial (RJF) is trading at 11.5x our C2022 EPS. Yes, lower rates are putting pressure on NIM, but net new money is growing at 6.5%, with market appreciation on top. We expect multiple starts rising toward our 14.5x target as Net Interest Income stabilizes from here,” Morgan Stanley’s Gosalia added.

“We believe Covid-19 disruption presents unique trigger points for consolidation in the wealth management industry. We expect advisors will increasingly join larger players that can offer access to capital, provide technology capabilities, and improve efficiency and advisor productivity. With its superior technology offering and advisor first business model, RJF is well-positioned to capitalize on this trend.”