Wachovia Downgrades Raymond James Financial (RJF) to Market Perform

July 24, 2008 8:22 AM EDT

Wachovia downgrades Raymond James Financial (NYSE: RJF) from Outperform to Market Perform with a $30 to $32 valuation range. However, the firm raises their 2008 EPS estimate from $2.17 to $2.20, and increases their 2009 EPS estimate from $2.42 to $2.45.

The downgrade is due to a "combination of a slower earnings projections at the bank and valuation."

The firm said, "The bank has grown from 2% of earnings in FQ4 to 33% of earnings currently. With loan growth likely to slow, net interest margins likely to normalize at a lower level, and credit quality deteriorating, we believe it will become less of an incremental contribution going forward.. Incremental earnings power will likely have to come from a better equity market. Until it does, we believe RJF is approaching fair value."

Wachovia also highlights that reserve coverage is a record at 1.26%. However, the credit outlook continues to weaken and the firm suspects that "the portfolio is beginning a seasoning phase in which higher normalized loss levels are likely."

The firm believes the RJF retail brokerage and bank story remains "solid", but a better equity market is needed for the stock to move out of the $29-$31 range.

Raymond James Financial, Inc., through its subsidiaries, engages in the underwriting, distribution, trading, and brokerage of equity and debt securities, as well as the sale of mutual funds and other investment products in the United States, Canada, and Europe.

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• Raymond James
• Wachovia

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