On Tuesday, Goldman Sachs reaffirmed its Conviction Buy rating on Jefferies Group (NYSE:JEF) with a stable $52.00 stock price target. The investment bank's analysis comes as Jefferies Group gears up to report its second-quarter 2024 earnings.
According to the firm, Jefferies has demonstrated one of the most significant year-to-date improvements in its mergers and acquisitions (M&A) backlog, showing a 90% increase compared to the peer average of 11%. This notable growth in the M&A backlog is a positive sign for the company's revenue prospects in the second half of 2024 and into 2025.
Despite the optimistic outlook for the longer term, Goldman Sachs anticipates that the second quarter of 2024 will present challenges for Jefferies. The forecast suggests that combined investment banking and trading revenue will be approximately flat, with a slight 2% decrease from previous estimates. Moreover, the compensation ratio is expected to remain largely unchanged, and a return on tangible common equity (ROTCE) of 7% is projected for the quarter.
Looking beyond the immediate quarter, Goldman Sachs projects a brighter future for Jefferies Group. The firm forecasts substantial increases in ROTCE, predicting 10.5% and 12.3% for the fiscal years 2025 and 2026, respectively.
These estimates could see further boosts from the pending sale of OpNet, a transaction that is anticipated to close in the third quarter of 2024. The sale is expected to eliminate post-tax losses from OpNet and could potentially add 110-150 basis points to the ROTCE. Additionally, the repurchase of sale proceeds could contribute up to 50 basis points.
In light of these developments, Goldman Sachs has adjusted its earnings per share (EPS) estimates for Jefferies Group, lowering the 2024 forecast by 5% while raising the 2026 projection by 3%. This revision reflects the firm's analysis of the current and future financial performance of Jefferies Group.
In other recent news, Jefferies Financial Group has been in the spotlight for several noteworthy developments. Oppenheimer has maintained an Outperform rating on Jefferies and increased its price target to $56, based on a valuation approach that blends metrics of both large and smaller financial firms. This new target is pegged to Jefferies' projected after-tax earnings for 2025, suggesting confidence in the company's growth prospects.
Further, Jefferies has expanded its strategic alliance with SMBC Group into the Canadian market. This move aims to capitalize on business opportunities within Canada by combining Jefferies' expertise in mergers and acquisitions, leveraged finance, and equity capital markets with SMBC's robust banking and debt capital markets experience.
In terms of financial performance, Jefferies reported a 12% increase in first-quarter profit, driven by a significant uptick in its investment banking and asset management businesses. The firm's investment banking revenue saw a 31% rise to $739.7 million, while asset management revenues soared to $273.4 million. Net earnings for common shareholders climbed to $149.6 million, or 66 cents per share.
Moreover, Jefferies exceeded Wall Street analysts' expectations in the first quarter, with an adjusted EPS of $0.87 and revenue of $1.74 billion. These results were bolstered by strong performances across its Investment Banking and Capital Markets segments, with revenues reaching $740 million and $712 million, respectively. These recent developments underline Jefferies' continued growth and strategic market position.
InvestingPro Insights
As Jefferies Group (NYSE:JEF) prepares for its second-quarter 2024 earnings report, insights from InvestingPro provide a deeper understanding of the company's financial position. With a market capitalization of $9.22 billion and a trailing P/E ratio of 32.4, Jefferies is trading at a value that reflects its expected earnings growth. This is supported by a PRONEWS24 exclusive InvestingPro Tip indicating that net income is anticipated to grow this year.
Investors should note that Jefferies has been able to maintain dividend payments for 15 consecutive years, which could be a sign of the company's commitment to shareholder returns, even as it faces a challenging quarter. Moreover, the company's gross profit margin stands at a robust 75.36%, underscoring its efficiency in generating income from its revenues.
While Jefferies is currently trading at 90.95% of its 52-week high, it has delivered a strong return of 43.91% over the past year. This performance is a testament to the company's resilience and the positive sentiment among investors. For those considering an investment in Jefferies, InvestingPro offers additional tips on the company's financial outlook, with a total of 7 tips available to guide investment decisions. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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