Jefferies is financial action that can keep winning. Here’s why.
Bank stocks had a big rally, but
Jefferies Financial Group
the stock still has room to function.
One could be forgiven for hesitating to enter financial stocks. They have been one of the best performing sectors this year – the
SPDR of the financial selection sector
(XLF) the exchange-traded fund gained 28% this year, beating the
12% increase – and no one wants to enter at the end of the trade. Today, some fear that the trends that propelled financial stocks, including booming financial markets, high trading volume and rising bond yields, are on their last legs.
There is no sign of slowing down at Jefferies (JEF), says Larry Pitkowsky, director of
(GOODX) funds. In its most recent quarter, which ended Feb. 28, Jefferies posted record results, including an 82% jump in net sales to $ 2.1 billion and net income of 494 million. dollars, almost tripling from a year ago. Jefferies’ underwriting and trading segments accounted for most of the company’s explosive results – they climbed 79% and 81% respectively – but it even recorded significant gains in its merchant banking segment, which it is reducing.
The liquidation of companies and the transfer of other companies has been a key part of Jefferies’ success, says Pitkowsky, whose fund held about 8% of its assets in stock at the end of February, according to the fund’s information. Jefferies agreed to sell the last part of her stake in National Beef in 2019 and ended her merchant banking business as it grows into what she calls a “pure financial services company.” The stock has traded sideways for much of the past five years, but has gained 141% in the past 12 months as financials have recovered – and gained – from pandemic lows.
Pitkowsky thanks the Jefferies management team of CEO Rich Handler and President Brian Friedman for these moves. In recent years, they have increased Jefferies’ underwriting and trading capabilities, and increased its return on equity to 12.8% from 2.6%, according to FactSet data.
“They don’t want to be anyone other than the best version of themselves,” says Pitkowsky, pointing to Jefferies’ success in investing more in performing segments and cropping areas that have become less profitable.
Jefferies, which closed at $ 33.30 on Monday, may not be able to replicate its recent outsized gains, but business is expected to remain strong. Profits are expected to rise 63.8% in FY2021 and then rise 10% more modestly from FY2020 levels in 2022. Jefferies also has a history of timely share buybacks – it has repurchased $ 2.6 billion of shares in the past three years. – which should also boost profits. Jefferies is known for “clever and materially successful stock buybacks,” says Pitkowsky.
Even taking into account the stock’s 37% gain this year, Pitkowsky argues that the stock still seems undervalued. It is trading at 7.8 times the estimated profit of $ 4.34 for 2021, which makes it much cheaper than its peers such as
Raymond James Financial
(RJF), which trades at 13.1 times and 14.9 times futures earnings, according to FactSet data.
“I love it,” says Pitkowsky, referring to the combination of valuation, strong leadership, impressive growth and consistent returns on capital for Jefferies shareholders.
Spoken like a true value investor.
Corrections and amplifications
The S&P 500 has gained 12% this year. An earlier version of this story said it was up 32%.
Write to Carleton English at [email protected]