Barron's Says Raymond James Financial (RJF) Could Fall Another 20%

This weekend's Barrons had a bearish piece on retail brokerage company, Raymond James Financial (NYSE: RJF). For most of 2008, Raymond James has weathered the storm that hurt many financial stocks. In fact, Raymond James' stock $38 in September, but fell to as low as $16.95 this past month after reporting results that did not meet expectations. Raymond James reported net income of $49 million, or 41 cents a share, well below expectations of 51 cents and 23% below last year's 53 cents a share.

Although, Raymond James CEO said it is bracing for recessionary times, Barron's is concerned some of the loans on RJF's may go bad. Additionally, if the brokerage business remains soft and credit quality further deteriorates, earnings estimates are likely to be lowered, which could bring down the stock price.

Raymond James' corporate and commercial- real-estate loans total some $4.6 billion. Most of these loans are in some of the hardest hit areas, including California and Florida. It also has close to $3 billion in residential mortgages, of which 90% are first-mortgage loans purchased from other institutions. More than 75% of them are interest-only ARMS, which are considered riskier than mortgages with principal payments. It also has a sizable investment portfolio of mortgage-backed securities.

Analyst Douglas Sipkin of Wachovia Capital Markets downgraded Raymond James to Underperform last week, concerned about how the current economy will affect the bank's loan quality. Sipkin cut his 2009 profit estimates by 33%, to $1.60 a share -- and he sees the stock falling as low as $16.

As the economy continues to deteriorate, investors may be wise to stay on the sideline and not buy shares of Raymond James.

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