With the expansion in investment opportunities to meet investors’ needs to improve their capital, the growing investors’ risk appetite, and rapid technological advancements, investment brokerage industry’s long-term outlook appears quite promising.

Given the industry’s bright prospects, financial stocks Raymond James Financial, Inc. (RJF), Houlihan Lokey, Inc. (HLI), and Perella Weinberg Partners (PWP) could be ideal watchlist additions in 2024.

In recent years, the financial services sector has showcased its ability to navigate unprecedented levels of uncertainty, aggravated by the COVID-19 pandemic and several geopolitical and economic headwinds. From insurance to investment brokerage to banking and capital markets, financial institutions demonstrated remarkable resilience and adaptivity.

The investment brokerage industry, in particular, is well-positioned to witness continued growth in the foreseeable years, driven by growing demand for its diverse, innovative offerings and rapid technological adoption. Firms in this industry offer securities brokerage and related tech-based financial services to retail investors, traders, and independent investment advisors.

Securities brokerage is the leading revenue-generating market in the U.S. as compared to investment banking and securities dealing, commodity contracts dealing, and commodity contracts brokerage. The industry includes more than 23,000 establishments (single-location and multi-location companies) with a combined annual revenue of nearly $126 billion.

The returns on securities relative to alternative investments drive demand for securities brokerage. The U.S. securities brokerage market is expected to reach $232.50 billion by 2028, exhibiting a CAGR of 4.2% during the forecast period (2023-2028).

Meanwhile, the global securities brokerages and stock exchanges market is projected to reach $3.48 trillion in 2030, growing at a CAGR of 8.7% from 2023 to 2030. With investors actively looking for avenues to improve their capital, the demand for diverse investment opportunities is increasing, fueling the market’s growth.

Some of the investment options that are in high demand are stocks, bonds, mutual funds, real estate, and certificates of deposit (CDs). The growing interest penetration is further expected to drive the market’s securities brokerage market expansion. Internet penetration provides access to online trading platforms via which people buy and sell stocks, bonds, and other securities.

Moreover, there has been a rise in the use of artificial intelligence (AI) and other cutting-edge technologies for faster trade executions, propelling the industry’s growth.

Given these favorable trends, let’s look at the fundamentals of the three Investment Brokerage stocks, beginning with the third choice.

Stock #3: Raymond James Financial, Inc. (RJF)

RJF is a diversified financial services company. It offers private client group, capital markets, asset management, banking, and other related services to individuals, corporations, and municipalities in the U.S., Canada, and Europe. The company operates through Private Client Group; Capital Markets; Asset Management; Bank; and Other segments. .

On November 30, 2023, RJF’s Board of Directors declared a quarterly cash dividend on shares of its common stock of $0.45 per share, payable on January 16, 2024, to shareholders of record on January 2, 2024. This implies a 7.1% increase over the prior dividend of $0.42 per share paid on October 16, 2023.

The dividend increase reflects the company’s robust capital structure and its ability to provide stable growth in the long run.

RJF pays an annual dividend of $1.80, which translates to a yield of 1.58% at the current share price. Its four-year average dividend yield is 1.45%. Moreover, the company’s dividend payouts have increased at a CAGR of 19.4% over the past three years.

On the same day, the Board also authorized the repurchase of the company’s shares of common stock in an aggregate amount of up to $1.50 billion. The repurchases may be made from time to time at prices that the company deems appropriate and subject to market conditions.

RJF’s trailing-12-month gross profit margin of 93.48% is 54.8% higher than the 60.37% industry average. Likewise, the stock’s trailing-12-month ROCE of 17.75% is 52.2% higher than the industry average of 11.67%. But its trailing-12-month net income margin of 15.11% is 39.9% lower than the industry average of 25.21%.

In terms of forward Price/Sales, RJF is trading at 1.90x, 28.8% lower than the industry average of 2.66x. However, the stock’s forward non-GAAP P/E of 12.09x is 15.5% higher than the industry average of 10.47x. Also, its forward Price/Book multiple of 2.12 is 77.7% higher than the industry average of 1.19.

For the fourth quarter that ended September 30, 2023, RJF’s net revenues increased 8% year-over-year to $3.05 billion. Revenue from the Private Client Group segment rose 13.8% from the year-ago value to $2.27 billion. But the company’s pre-tax income was $585 million, down 5% year-over-year.

In addition, the company’s adjusted net income came in at $457 million, or $2.13 per diluted share, compared to $459 million, or $2.08 per share, in the prior year’s quarter, respectively.

Analysts expect RJF’s revenue for the fourth quarter (ending December 2023) to increase 7.3% year-over-year to $2.99 billion. However, the company’s EPS for the ongoing quarter is expected to decline 1.6% year-over-year to $2.25. Also, RJF missed the consensus EPS estimates in three of the trailing four quarters.

For the fiscal year ending September 2024, the company’s revenue and EPS are estimated to grow 6.2% and 11.7% year-over-year to $12.34 billion and $9.27, respectively.

RJF’s stock has gained 13.4% over the past six months and 6.2% year-to-date to close the last trading session at $112.10.

RJF’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a C grade for Growth, Stability, Momentum, Quality, and Value. Within the Investment Brokerage industry, RJF is ranked #8 among 20 stocks.

Click here to access all the ratings of RJF.

Stock #2: Houlihan Lokey, Inc. (HLI)

HLI is an investment banking company that offers merger and acquisition (M&A), capital market, financial restructuring, and financial and valuation advisory services internationally. The company operates through three segments: Corporate Finance; Financial Restructuring; and Financial and Valuation Advisory.

During the second quarter of 2023, HLI’s Board of Directors declared a regular quarterly cash dividend of $0.55 per share of Class A and Class B common stock. The dividend will be payable on December 15, 2023, to stockholders of record as of the close of business on December 1, 2023.

HLI pays an annual dividend of $2.20, which translates to a yield of 1.84% at the prevailing share price. Its four-year average dividend yield is 2.04%. Moreover, the company’s dividend payouts have increased at a CAGR of 19.4% over the past three years. HLI has raised its dividends for eight consecutive years.

HLI’s trailing-12-month gross profit margin of 93.5% is 54.9% higher than the 60.37% industry average. Likewise, the stock’s trailing-12-month ROCE of 16.24% is 39.3% higher than the industry average of 11.66%. But its trailing-12-month net income margin of 14.1% is 44% lower than the industry average of 25.21%.

In terms of forward non-GAAP P/E, HLI is trading at 26.70x, 155.1% higher than the industry average of 10.47x. Also, the stock’s forward Price/Sales multiple of 4.96 is 62.8% higher than the industry average of 2.66.

For the fiscal 2024 second quarter that ended September 30, 2023, HLI’s revenues from Financial Restructuring grew 17.3% year-over-year to $114.67 million. But its total revenues came in at $466.99 million, compared to $489.54 million in the previous year’s quarter. The company’s operating income was $90.28 million, a marginal increase year-over-year.

Furthermore, adjusted net income attributable to EVR and EPS were $67.03 million and $0.99, up 10.4% and 13.8% year-over-year, respectively.

Street expects HLI’s EPS for the third quarter (ending December 2023) to increase 3.4% year-over-year to $1.18, and its revenue is expected to grow 9.2% year-over-year to $498.56 million. Moreover, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.

For the fiscal year ending March 2024, the company’s revenue is expected to grow 4.2% year-over-year to $1.89 billion. However, analysts expect its EPS for the current year to decline 2.3% year-over-year to $4.44.

Shares of HLI have surged 25.9% over the past six months and 34.8% year-to-date to close the last trading session at $118.45.

HLI’s POWR Ratings reflect its mixed fundamentals. The stock has an overall rating of C, which equates to a Neutral in our proprietary rating system.

HLI has a C grade for Quality, Stability, Sentiment, Momentum and Growth. It is ranked #7 out of 20 stocks in the Investment Brokerage industry.

Get all HLI ratings here.

Stock #1: Perella Weinberg Partners (PWP)

PWP acts as an independent investment banking entity that offers strategic and financial advice services internationally. It provides advice services related to mission-critical strategic and financial decisions, mergers and acquisition execution, shareholder and defense advisory, capital markets advisory, private capital placement, and financing and capital advisory solutions.

PWP’s trailing-12-month gross profit margin of 97.12% is 60.86% higher than the 60.37% industry average. However, the stock’s net income margin of negative 1.33% compared to the industry average of 25.14%.

In terms of forward Price/Sales, PWP is trading at 0.90x, 66.4% lower than the industry average of 2.66x. But the stock’s forward non-GAAP P/E of 25.06x is 139.5% higher than the respective industry average of 10.47x.

For the third quarter that ended September 30, 2023, PWP reported revenues of $139 million, a decrease of 4% year-over-year. The company incurred an operating loss of $26.69 million during the quarter.

Also, the company’s adjusted net income was $12.62 million, or $0.12 per common share, compared to $25.95 million, or $0.26 per common share in the previous year’s period, respectively. But as of September 30, 2023, its cash and short-term investments came in at $196.60 million with no outstanding indebtedness.

Analysts expect PWP’s revenue for the fourth quarter (ending December 2023) to decrease 4.4% year-over-year to $175.12 million. On the other hand, its EPS for the ongoing quarter is expected to increase 12.1% year-over-year to $0.12. Further, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past six months, the stock has gained 44.5% and 30.2% over the past year to close the last trading session at $12.28.

PWP’s POWR Ratings reflect its mixed prospects. The stock has an overall grade of C, translating to a Neutral in our proprietary rating system.

PWP has a C grade for Quality, Stability, Value, and Growth. It is ranked #2 among 20 stocks within the same industry.

To see the other ratings of PWP for Sentiment and Momentum, click here.

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RJF shares were unchanged in premarket trading Thursday. Year-to-date, RJF has gained 6.26%, versus a 25.19% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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