The investment banking firm launched Q4 earnings season with robust results.
The fourth quarter earnings season begins in earnest next week when several large financial firms report results, but investors got a sneak preview Wednesday when investment bank Jefferies Financial released its Q4 earnings.
Jefferies quarter ends November 30, as opposed to December 31, which is why it is not typically cited as an earnings bellwether like JPMorgan Chase (NYSE:JPM), Blackrock (NYSE:BLK), Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and other financial giants that report next week.
But investors should be pleased with Jefferies’ strong Q4 results, which could also foretell strong results next week.
Investment banking revenue surges 73%
Jefferies topped revenue and earnings estimates in the fourth quarter. It far outpaced revenue estimates, generating $1.96 billion in the quarter, ahead of $1.74 billion estimates. The $1.96 billion was some 63% higher than the same quarter a year ago.
Earnings were also strong, coming in at about $206 million, or 91 cents per share. That is up some 214% from the same quarter a year ago, and bested estimates of 87 cents per share. While a very strong quarter, it should be noted that 2023 was a historically bad year for investment banking, so the comps are a bit skewed.
Nonetheless, investment banking has stormed back in 2024, as interest rates have come down and inflation is back near the Fed’s target of 2%.
In the quarter, Jefferies investment banking revenue surged 73% year over year to $987 million. That was about 5% higher than it was in the previous quarter. Within investment banking, advisory revenue surged 91% to a record $597 million.
Jefferies also saw a 34% increase in capital markets revenue to $651 million and a 123% spike in asset management revenue to $315 million. November was a particularly strong month for the stock market, which boosted asset management income. Unlike the other financial firms reporting next week, Jefferies Q4 results do not include asset management totals from a weaker December.
For the full fiscal year, Jefferies took in $7.0 billion in revenue, a 49% year over year increase, with investment banking accounting for about $3.44 billion, up 51% year over year. Net earnings were $669 million for the full year, or $2.96 per share, up 169% year over year.
Dividend raised by 14%
While revenue was strong, so was Jefferies expense management. While total expenses were up 48% to $1.65 billion, the compensation ratio — total compensation expense divided by total net revenues — dropped to 50.2%, from 51.1% a year ago. Further, the non-compensation expense ratio fell to 34.2%, from 41.6% a year ago.
This helped Jefferies improve its cash position and grow its operating margins. As a result, it boosted its dividend by 14% to 40 cents per share, up from 35 cents. This would be the ninth straight year of dividend raises for Jefferies.
Jefferies did not release an outlook or guidance for 2025 in its materials, but CEO Richard Handler and President Brian Friedman struck an optimistic tone in the shareholder letter.
“Jefferies begins 2025 in the best position ever in our firm’s 62-year history,” Handler and Friedman wrote. The leaders said the “financial stars are aligning” and that there are signs that the markets its serves are poised for “continued momentum and sustained growth.”
The two executives elaborated further on in the letter.
“We begin this year with a renewed M&A pipeline that has a higher likelihood of successful execution, a growing IPO backlog, greater demand for capital from companies and private equity sponsors, and elevated trading volume,” they wrote.
Handler and Friedman added that they see a resurgent interest in M&A, continued demand for private equity sponsors, and a meaningful opening of the IPO market.
Is Jefferies stock a buy?
Jefferies stock had a tremendous year, returning about 100% over the past 12 months. And analysts are still bullish on it, as Goldman Sachs recently boosted its price target by $20 to $86 per share.
The median price target among analysts is $88 per share, which would be an almost 10% increase over the current $80 per share price.
With its M&A tailwinds, strong dividend, and reasonable valuation with a P/E of 27 and a forward P/E of 17, it looks like a decent option. This is particularly true in a year where financial markets deregulation could occur. A 10% return with a good dividend is a solid investment in what could be a volatile year.
