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Investment bank Jefferies Financial (NYSE: JEF) posted strong fiscal third quarter earnings, punctuated by significant year-over-year gains. However, the results fell short of analysts’ estimates, which caused the stock price to fall more than 2.5% Thursday morning shortly after the opening bell.However, the stock clawed back some of the losses as the morning wore on, as it climbed back to over $61 per share by 12:00 p.m. ET, down about 1.5% on the day.Perhaps investors realized that the reaction to the earnings miss was a bit overdone, given the overall strength of the third quarter earnings. Let’s see if the selloff creates a buying opportunity for investors.
Earnings rise 236%
Earnings miss aside, it was an excellent quarter for the investment bank, as net revenue jumped 42% year over year to $1.68 billion. Analysts were a bit more optimistic, estimating $1.72 billion.Net earnings were even more impressive, climbing 236% to $181 million, or 75 cents per share, but they were not quite as robust as analysts had projected, falling short of 80 cents per share estimates.While the gains were impressive, it should be noted that they are being compared to one of the worst years in recent history for M&A and investment banking in 2023.Still, there was a lot to like, as investment banking revenue was up 47% year over year to $949 million, and up 18% from the prior quarter. Further, the advisory business had its best quarter ever, generating $592 million in revenue.“Our third quarter net revenues of $1.68 billion reflect strong performance and continued momentum in Investment Banking, with particularly strong performance in Advisory and demonstrating the successful ongoing execution of our strategy to drive the growth of our business,” CEO Richard Handler and President Brian Friedman said. “We are pleased with the strength and direction of our profit margin and return metrics and are optimistic about the balance of this year and our outlook for 2025.”
Good sign for banks
Jefferies is one of the last companies to report earnings every quarter, but it is also on a different schedule than others, with results as of August 31. So, in that sense, it could truly be seen as a bellwether for banks, and investment banks in particular, which report their third quarter earnings starting October 11, less than two weeks from now.While the upcoming bank results will be as of September 30, investors can get a pretty good sense of what to expect, based on Jefferies performance through August.Looking forward, while Jefferies did not provide guidance for its Q4, Handler and Friedman struck an optimistic tone in their comments — citing a robust pipeline of deals.“Our Investment Banking pipeline remains strong heading into year-end and momentum across all of our business lines continues,” they said. “We feel we have the right (and expanded) global team that is positioned exceptionally well to serve our clients, especially in a backdrop of declining interest rates and increasing activity driven by pent up demand for capital markets and advisory deal flow.”
Time to buy?
Jefferies stock is up 51% year-to-date, but its valuation is reasonable, with a forward P/E ratio of 14. That may be why analysts remain somewhat bullish on the stock, as Morgan Stanley just raised its price target to $67 per share. That would suggest about a 10% increase over the current price.With interest rates coming down, M&A activity should heat up, and that’s a good sign for Jefferies. The only concern is the valuation, but it looks reasonable right now, so Jefferies should have more room to run coming off the past two difficult years.More By This Author:The Top 3 Bond ETFs To Buy with Interest Rates FallingWhich Indexes Performed The Best During Rate Cut Week? Changes Afoot: Why Nike Stock Is Surging
