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Jefferies Tank 9.3% as Revenues Disappoint

Shares of Jefferies Financial Group Inc. (NYSE: JEF) were down 9.3% on January 12 to close at $37.59, after the American financial services company reported mixed Q4 results. The company exceeded earnings expectations but fell short of revenues estimates.

However, the company rewarded its shareholders with higher buybacks and a 20% increase in dividends.

Q4 Performance

Adjusted earnings of $1.36 per share exceeded analysts’ expectations of $1.31 per share. The company reported earnings of $1.11 per share for the prior-year period.

However, revenues decreased 3% year-over-year to $1.81 billion and lagged consensus estimates of $1.88 billion.

The decline in revenues reflected a decrease of 52% and 34% in Asset Management revenues and Merchant Banking revenues, respectively. However, a 43% decline in Corporate revenues was partially offset by a 5% increase in Investment Banking and Capital Markets revenues to $1.6 billion.

Dividend Hike by 20% & Increased Buybacks

The company raised its quarterly dividend by 20% to $0.30 per share, payable on February 25 to shareholders on record as of February 14.

The company attributed the dividend increase to strong business performance and growth, and the limited need for incremental equity capital.

Furthermore, the company has increased its share buyback authorization by $88 million to a total of $250 million.

Management added, “We will continue also to return capital to shareholders via share buybacks as well as, if financial conditions and circumstances permit, in-kind distributions or special cash dividends as we continue to wind down the legacy merchant banking portfolio.”

CEO Comments

Looking ahead, CEO Richard Handler, stated, “We believe Jefferies’ future growth will be fueled by the continued buildout of our Investment Banking effort, enhancing our Capital Markets businesses, and further developing our Leucadia Asset Management alternative asset management platform.”

He further added, “We will continue winding down our legacy Merchant Banking portfolio prudently and patiently, and are confident that, as we have proven in the past, there is value to be realized in excess of tangible book value.”

Analyst Recommendations

Overall, the stock has a Hold consensus rating based on 1 Buy and 3 Holds. The average Jefferies stock price projection of $47.25 implies 28.7% upside potential from current levels. Notably, Jefferies shares have jumped 41% over the past year.

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