Raymond James' Deal Bigger Than You Think: Goldman

NEW YORK (TheStreet) -- Raymond James Financial (RJF)'s April acquisition of regional broker dealer Morgan Keegan from Regions Financial (RF) will likely drive an upside earnings surprise, according to a note from Goldman Sachs published Friday.

Goldman's analysts see "lots of room" for the $900 million deal to beat both management original guidance and consensus expectations. They note that Morgan Keegan's assets under management grew 18% from the time the deal was announced in January through April 30. Raymond James has also done a better job than anticipated of retaining financial advisors--hanging on to 98% of legacy Morgan Keegan advisors compared to an estimated 90%.

Another potential plus from the deal, according to Goldman, is that Raymond James financial advisors are "10%-12% more productive" than those at Morgan Keegan. If Raymond James can make up even half that difference using its "superior distribution platform," it would improve earnings by an additional one percent above Goldman's (above consensus) estimates.

Putting aside the acquisition, Goldman sees favorable trends for Raymond James' legacy business, including a better recruiting environment for financial advisors, "a growing population of retirees, and strengthening distribution economics." Goldman rates Raymond James a buy with a $40 price target. Shares closed Thursday at $32.99.

Less enthusiastic about Raymond James are analysts at Sandler O'Neill, which rates the stock a hold with a price target of $37. While Sandler analysts "expect the stock to be a relatively steady performer in the group," they argue that "many of the firm's financial services peers are trading at what we view as more dislocated multiples," according to a report published Thursday.

-- Written by Dan Freed in New York.

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