With conference season kicking off this week, we wanted to share a few files that we thought might be helpful. The first is our Question Bank, which includes both company specific and general questions for all of the firms in our coverage presenting and/or participating in 1x1s. We also included some Guidance Tearsheets which compare our modeled forecasts to each piece of company guidance in an easy-to-read format. Please feel free to use us as a resource in case you need anything ahead of your meetings.
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This week our WR Diversified Banks & Brokers Index was up +10bps, trailing the broader market (+160bps) but tracking largely in line with the S&P Fins. (+10bps). We saw meaningful dispersion in terms of share performance as the Retail Brokers and M&A firms were powered by strong 4Q results / favorable guidance, with LPLA (+7%) and EVR (+6%) clear standouts. The biggest laggards this week were the asset sensitive banks and capital markets firms, including BAC (-4%) and MS (-3%). While bank / broker shares took a breather this week, YTD performance has been strong, particularly at those firms which underperformed by a wider margin in 4Q18 but reported strong results including EVR (+26%), LPLA (+23%), and Citi (+22%), while mixed 4Q results have weighed on performance at JPM (+6%), WFC (+6%) and MS (+5%).
This week our WR Diversified Banks & Brokers Index was down modestly (-30bps), largely in line with the S&P Fins. (flat) and the broader market (-20bps). Share trends over the last week were quite bifurcated, with STT (+2%), AMTD (+2%), Citi (+1%), and BAC (+1%) the relative winners and ETFC (-6%), EVR (-2%), and MS (-2%) the laggards. That said, YTD performance remains quite strong, with our index outpacing the S&P 500 by ~700bps. Citi (+23%), BAC (+20%) and GS (+20%) have been clear winners so far, while LAZ (+5%), JPM (+6%), and MS (+8%) have been the relative laggards. As we approach the end of 4Q earnings season, we wanted to highlight some key debates on select stocks:
Following the conference call this morning (1/24/19), we are raising estimates modestly to reflect favorable guidance on a number of items including 1) comp; 2) buyback; and 3) cash balances. In our view, the big concern on RJF going into earnings was that street numbers were too high. However, coming out of the call, given greater visibility on costs, capital, and cash, even if we apply more conservative assumptions around capital markets and Institutional commissions, we see a clear path to >$7 EPS in 2019, suggesting cons. is doable. With shares trading at ~11x 2019E EPS, risk / reward is still favorable, though we continue to see greater upside potential at LPLA and SF. PT to $88 from $86; maintain Outperform rating.
RJF reported FY1Q18 EPS of $1.79, coming in ahead of our $1.74 and cons. of $1.73. Headline number is relatively clean (see variance on pg. 2); compared with our estimate, the beat was driven by higher fee income (+$0.02) and lower comp (+$0.10), which more than offset higher non-comps (-$0.03) and higher provision (-$0.05). Bottom Line: While revenue trends in 1Q were solid, price action will be tethered to mgmt. outlook, with the biggest areas of investor focus so far: 1) Strong uptick in Cash balances (and sustainability); 2) Commercial loan risk given uptick in provision; 3) Cost guidance (Professional, Other Expense); and 4) Capital return / appetite for buyback. Barring disappointing guidance in these four areas, given a relatively low bar with shares lagging peers >400bps YTD, we could see RJF outperform modestly, though it remains less clear whether cons. moves higher.
This week our WR Diversified Banks & Brokers Index was up +7%, slightly outpacing the S&P Fins. (+6%) but tracking well ahead of the broader market (+3%). The move higher was led by broad-based strength across the group, with GS (+14%), BAC (+13%), Citi (+11%), and BK (+10%) the clear winners following encouraging 4Q results / commentary. Relative laggards over the last week were WFC (+4%), JPM (+5%), and MS (+5%).
This week our WR Diversified Banks & Brokers Index was up +2.7%, slightly outpacing the broader market (+2.5%) and tracking ahead of the S&P Fins. (+1%). The move higher was led by the Regional Brokers (+7%), with the M&A Independents (+1%) and Universal Brokers (+1%) lagging the rest of the group.
This week our WR Diversified Banks & Brokers Index was up +4%, outpacing S&P Fins. (+3%) and the broader market (+2%). The move higher was led by the Universal brokers (+6%) and M&A Independents (+6%), with the Trusts (+2%) and Regional Brokers (+2%) lagging the rest of the group. The big stock winner this week was EVR (+8%) which benefited from winning the Bristol / Celgene advisory mandate (~$20mm fee, per Dealogic).
Two more rate hikes in 2019. Fed balance sheet unwind poised to continue. Investors banging their heads against a wall that’s now in the House budget plan. It was a tough week for the market (-7%), though our Wolfe Diversified Banks & Brokers Index did fare a bit better (-4% WoW). LPLA (-2%) and WFC (-3%) were relative outperformers, and BK (-8%), SF (-8%), C (-9%), and EVR (-10%) all lagged. With fewer than five trading sessions before we close out the year it is increasingly likely the market finishes in the red (-10% YTD). The performance has been even worse for our coverage which is down -23% YTD, with LPLA the clear standout (+2%), and GS (-37%) and STT (-38%) the biggest laggards.
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