RJF Raymond James Financial
Premium wealth franchise earning well above its cost of equity, but the price already assumes peak returns last.
The story
Raymond James is a wealth-management-led franchise with about $1.5T in client assets, backed by a conservatively capitalized bank, capital markets, and asset management. Its returns are high and capital-light for a broker, with Tier 1 leverage well above peers and excess capital funding buybacks. Trailing ROE of about 18.6% is inflated by peak cash-sweep net interest income and strong equity markets, so it sits near the top of the cycle. Advisor recruiting keeps fee-based assets compounding.
I normalize ROE to about 16.5%, down from 18.6%, because sweep spreads and interest income should compress as rates fall, while the fee-based wealth mix keeps ROE well above the roughly 10.2% cost of equity. Book growth of about 8% reflects retained earnings net of buybacks, and it fades to 4.5% at terminal, below the risk-free rate. A beta of 1.1 matches the industry anchor, and failure risk is low given the excess capital.
Value drivers
| Return on equity (normalized) | 16.5% |
| Book-value growth (Y1) | 8.0% |
| Terminal book growth | 4.5% |
| Beta | 1.10 |
| Failure probability | 1.0% |
| Cost of equity | 10.2% |
Valuation bridge
| PV of excess returns | 4.25B |
| PV of terminal excess | 3.03B |
| Equity value | 19.51B |
| ÷ shares → per share | $101.43 |
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 12.42B | 16.5% | 783.95M | 711.46M |
| 2 | 13.42B | 16.0% | 782.41M | 644.40M |
| 3 | 14.44B | 15.5% | 772.82M | 577.63M |
| 4 | 15.48B | 15.1% | 754.49M | 511.78M |
| 5 | 16.54B | 14.6% | 726.84M | 447.43M |
| 6 | 17.61B | 14.1% | 689.37M | 385.12M |
| 7 | 18.67B | 13.6% | 641.69M | 325.34M |
| 8 | 19.73B | 13.1% | 583.57M | 268.51M |
| 9 | 20.77B | 12.7% | 514.90M | 215.00M |
| 10 | 21.79B | 12.2% | 435.74M | 165.12M |
Key risks
- Rate cuts and cash-sorting compress sweep NII and bank NIM
- Equity market drawdown hits asset-based fees and capital markets revenue
- Advisor recruiting costs and payout inflation erode margins; regulatory scrutiny of cash sweep pricing
Catalysts
- Sustained net new asset growth and advisor recruiting wins
- Accelerated buybacks from excess capital and M&A advisory recovery