Stifel Financial Stock: Still Room to Run (NYSE:SF)
ridvan_celik
elevator pitch
Stifel Financial Co., Ltd. (New York Stock Exchange: SF) The stock still deserves a Buy rating.
The company is returning a higher percentage of excess capital to shareholders, and its recent financial performance in the fourth quarter of 2023 exceeded expectations. Therefore, Stiefel Financial’s recent outperformance compared to its stock price is guarantee.
SF’s stock price is likely to trade higher in the future. Stifel Financial’s financial outlook for fiscal 2024 is favorable, and SF’s valuation is not challenging considering its P/E and P/B metrics. This explains why I decided to maintain a Buy rating on Stifel Financial.
Recent stock price outperformance is justified
Shares of SF rose +22.1% (Source: S&P Capital IQ) Over the past two months or so since my previous article was published on November 19, 2023, the S&P 500 is up +9.2% over the same period. In the past week since Stifel Financial announced its fourth quarter 2023 results. January 24, 2024 The company’s stock price before trading hours +5.4%This outperforms the S&P 500’s +1.3% gain over the same period.
I believe there are a variety of factors that provide justification for Stifel Financial’s stock outperformance.
SF’s latest quarterly financial performance, disclosed in its Q4 2023 earnings press release, was better than the market had expected. The company’s revenue increased +9.7% QoQ to $1,146.4 million in the year-ago quarter, which was +5.6% higher than consensus revenue forecasts. Stifel Financial also achieved a return of +14.4% in Q4 2023, with regular EPS increasing +150.0% QoQ to $1.50 in the most recent quarter. Notably, both Stifel’s revenue and bottom line fell short of market expectations over the previous six quarters from the second quarter of 2022 to the third quarter of 2023.
In its latest earnings call, Stifel Financial attributed improved fourth-quarter 2023 results to “higher fixed income revenues as its interest rate business began to rebound” and “higher advisory revenues” following solid results in the industrials, healthcare and technology sectors. . Specifically, SF’s fourth quarter fee and principal trading (fixed income) revenue and investment banking (advisory) revenue exceeded Wall Street’s consensus forecasts by +10% and +11%, respectively, as highlighted in the fourth quarter earnings call slides.
Separately, the company has performed quite well in terms of returns on shareholder equity.
Stifel Financial increased its quarterly dividend per share by +17% to $0.42 in line with the release of Q4 2023 results. This translates to a decent consensus for SF’s fiscal 2024 dividend yield of 2.3%, assuming the company sticks to its quarterly dividend of $0.42 in fiscal 2024.
Additionally, I previously wrote in a November 2023 article, “Stifel’s CEO sent a clear message that SF intends to invest more aggressively through his comments at the company’s recent investor event (the Wolfe Research Wealth Symposium on November 8, 2023). “It was mentioned. Share repurchases.” SF did not disappoint the market as the amount spent on share buybacks increased 19% QoQ from $118.8 million in Q3 2023 to $141.1 million in Q4 2023.
In the next section, we explain why we think Stifel Financial’s stock still has room to move.
SF still has the potential for further capital appreciation.
In my opinion, Stifel Financial stock remains undervalued despite its recent outstanding performance relative to its share price.
The market currently values SF at a normalized P/E multiple of 11.4x for the next 12 months (Source: S&P Capital IQ). Stifel Financial’s consensus normalized EPS CAGR forecast for fiscal years 2024-2026 is +18.8%. That means the stock is currently trading at 0.61x Price-to-Earnings Growth (PEG), which is less than 1x PEG, which implies a fair valuation.
SF is also trading at a discount to fair valuation based on the Gordon Growth Model, which divides (ROE – Permanent Growth Rate) by (Cost of Capital – Permanent Growth Rate) to arrive at a “fair” P/B ratio. I assumed Stifel Financial’s ROE, cost of equity, and terminal growth rate to be 13.6% (consensus FY 2024 forecast), 8%, and 3%, respectively. This translates to a P/B multiple target of 2.12x, which is +25% higher than the stock’s current trailing P/B metric of 1.69x.
In my opinion, the company is likely to deliver good results in the current financial year, which would support a positive reassessment of the stock’s valuation in due course.
Current sell-side analysts’ consensus financial estimates show that Stifel Financial is expected to post positive revenue growth of +9.5% in fiscal 2024, compared to the company’s -1.0% revenue decline in fiscal 2023. Additionally, the market expects: SF will turn around from an earnings decline of -18.5% last year to growing regular EPS of +39.7% this year.
The midpoint of SF’s fiscal 2024 revenue guidance is $4.75 billion (Source: earnings call slides), which is very close to Wall Street’s consensus top estimate of $4.761 billion. In the company’s fourth quarter 2023 earnings briefing, Stifel Financial said the sell-side’s consensus fiscal 2024 revenue outlook is “asset management (author’s emphasis) “Institutional revenues will increase by a combined $400 million, which will more than offset the estimated $80 million decrease in net interest income.”
It’s worth highlighting that Stifel Financial’s recent financial advisor hiring figures are impressive. SF hired 40 new financial advisors in the fourth quarter of 2023, which is more than the 36 new financial advisors it hired in the third quarter of 2023. On a full-year basis, SF added 171 new financial advisors last year, or +13. % better compared to the 152 new financial advisors the firm hired in 2022.
In my November 19, 2023 article, I highlighted that “as the number of financial advisors in SF increases, the revenue from the firm’s wealth management segment increases accordingly.” Accordingly, we believe Stifel Financial’s aggressive financial advisor hiring in the fourth quarter and 2023 will help its wealth management business and the company as a whole meet or even exceed its 2024 consensus financial expectations.
Simply put, I am of the view that Stifel Financial’s stock price is undervalued and that the company’s 2024 performance is likely to be strong, so the stock could rise further.
concluding thoughts
We maintain our investment opinion on SF. This is because we believe there is still room for the stock price to rise. Stifel Financial’s PEG valuation multiple is less than 1x, but it qualifies for a higher P/B ratio based on the Gordon growth model. SF’s performance in 2024 is likely to be good because its asset management business will benefit from the increase in the number of financial advisors.
