Raymond James Financial (NYSE:RJF) is one of America’s large financial services companies. The business, which provides everything from basic investment services to comprehensive wealth management, has also proven to be a remarkably good investment over many years.
Over the last 10 years, shares of RJF have gone from less than $35 per share to over $140 per share but can Raymond James keep this incredible run up?
Stunning Revenue Growth
RJF has been on an extremely strong run of revenue growth in recent years. Not only has the company posted 18 consecutive quarters of top line growth, but it has also achieved full-year revenue growth in excess of 14% in each of the last four years. Over the past decade, full-year revenues more than tripled from $5.04 billion to $15.44 billion.
The bottom line has seen a similar rise with double-digit growth rates consistently reported on a year-over-year basis throughout the last four quarters. The company is also quite profitable. In the last 12 months, Raymond James delivered a net margin of 16.5%, complemented by a return on invested capital of 15.0%.
2024 proved to be yet another strong year for Raymond James, with quarterly revenues hitting a record of $3.54 billion in Q4. This record high, a 17% improvement over the year-ago quarter, was driven by record revenues in both the company’s private client and asset management businesses. Diluted EPS, meanwhile, rose by 23% to $2.86.
Raymond James also raised assets under management by 14% to $1.56 trillion at the end of the most recent quarter. The assets in its fee-based private client accounts increased by 17% to $876.6 billion. Both of these metrics favor future top line growth at RJF, which makes a considerable amount of money from its fees.
Analysts forecast earnings per share to climb at an annualized rate of around 15% over the next 3-5 years.
RJF’s Competitive Position
Despite extraordinarily persistent growth and high expected future potential, Raymond James doesn’t have a defensible or impenetrable moat.
To begin with, investors are increasingly turning from companies like Raymond James to low-cost funds that save them money on fees and expenses.
The explosion of lower-cost alternatives certainly hasn’t stunted RJF’s growth to-date, but long-term as younger investors make a larger splash it’s likely to be a bigger headwind.
Another issue that has affected both Raymond James and the independent broker-dealer financial advisory market at large is the increasing difficulty of hanging on to financial advisors. Many advisors are increasingly tempted to try to own their own businesses, rather than working under the umbrella of a company like RJF. To hold onto advisors, Raymond James and others have been compelled to raise their incentives, thus eating into their own margins.
Although Raymond James is a well-known name in its industry, it isn’t exactly a dominant company. RJF competes with several larger financial services majors that are well-entrenched and certainly aren’t going anywhere. While the financial sector’s size and continued growth likely leave room for a company like Raymond James to succeed alongside its larger peers, the company will likely never have an ironclad competitive moat around it.
Is Raymond James a Steal?
Right now, RJF shares trade at what appears to be a fairly low valuation given the company’s performance and potential for future growth. RJF shares are priced at 14.1x earnings, 2.3x sales and 13.6x operating cash flow.
Analysts appear to see upside in RJF, though it’s worth noting that the stock has a consensus Hold rating at the moment.
Nevertheless, the median target price of $174 per share for the stock would result in a 12-month gain of over 20% from its current price of $144.54.
Is RJF’s Dividend Worth It?
At 1.3%, RJF currently offers similar income potential to the S&P 500 index but the dividend growth from Raymond James could be more attractive.
RJF’s dividend payout ratio is currently just 18%, giving management a great deal of room for future increases. As such, investors who buy and hold RJF could be getting in on a potentially very solid long-term dividend growth asset in the financial sector.
Raymond James’ commitment to returning cash to shareholders was on full display in the most recent quarterly report. Going into this year, the company not only increased its dividend by 11% but also authorized up to $1.5 billion in share buybacks.
Given that the company currently has a market cap of under $30 billion, this buyback is quite significant and could allow Raymond James to take advantage of its own stock’s currently favorable pricing.
Is Raymond James Stock a Buy, Sell or Hold?
With significant earnings growth potential, attractive dividend and cash buyback programs and a history of strong execution by management, Raymond James Financial is a Buy.
It’s worth taking into account that Raymond James may be best for investors who are willing to hold it for the long run. With a potentially weaker economy shaping up for 2025, the stock may not perform incredibly well in the short term.
As a large financial services company, RJF probably also won’t be able to deliver the kind of sudden returns many investors have become accustomed to in high-growth tech stocks.
The company’s compounding power and potential as a good dividend growth investment, however, could make it a solid stock to buy and hold for strong returns over many years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
