RAYMOND JAMES FINANCIAL INC (RJF) stock intrinsic value fair value estimate & owner earnings analysis

Raymond James is a diversified financial-services firm with four reporting segments: Private Client Group (about 8,900 financial advisors, employee and independent, plus affiliated firms through its RCS division), Capital Markets (investment banking, institutional sales and trading), Asset Management, and a Bank that lends to the firm's wealth clients and to businesses. Net revenues were $14.07 billion in fiscal 2025 (year ended September 2025), up from $12.82 billion. About 91% of revenue is from the United States, about 5% from Canada and about 4% from Europe. HOW WE MEASURE EARNINGS. Cash flow at a brokerage bank swings by billions with client cash and securities balances (reported operating cash flow was -$3.5 billion in fiscal 2023 and +$6.6 billion in fiscal 2021 on net income of $1.7 billion and $1.4 billion), so it cannot be read directly. We strip out those balance-sheet movements, deduct share-based pay (about $254 million in fiscal 2025) as a real cost, and keep loan-loss and legal provisions as a recurring cost rather than adding them back. The result, owner earnings per diluted share, was $9.62 in fiscal 2025, $8.18 in 2024, $7.05 in 2023, $8.41 in 2022, $7.02 in 2021 and $4.18 in 2020. These figures are on a different basis from our previous estimate for this company (which started from reported net income per share), so the earlier values are not comparable. We could not reconcile fiscal 2017 cash-flow line items to the reported total, so that year is left out. NORMAL EARNINGS LEVEL. We use $8.30 per share, the middle of fiscal 2022 through 2025. Fiscal 2022 is the first year including the TriState Capital bank acquisition (June 2022); earlier years describe a smaller firm. This window spans fiscal 2022, when rates were rising from near zero, and the high-rate years of 2023-2025, so it does not treat today's short-term rates as permanent. It is deliberately below fiscal 2025's $9.62. Owner earnings grew 17.6% in fiscal 2025 ($9.62 versus $8.18); our base case assumes only 3% growth in the first year from the $8.30 level, below that trailing rate. Results so far in fiscal 2026 are strong: net income for the nine months to June 2026 was $1.70 billion versus $1.53 billion a year earlier, and diluted earnings per share were $8.52 versus $7.35. But roughly half of that increase (after tax) came from credit and legal provisions swinging from a $107 million charge to a $3 million release, which is not a repeatable gain, so we have not raised the normal level. WHAT THE BUSINESS DEPENDS ON. Most revenue tracks client assets (market levels) and advisor productivity; investment banking is lumpy; and a large slice comes from interest and cash-sweep spreads. Those spreads are already shrinking as the Federal Reserve cuts: fees from third-party banks on client cash fell from $607 million to $486 million in fiscal 2025 and fees from the firm's own bank fell from $824 million to $754 million. The firm's own estimates show bank net interest income falling about 4% for a 1-point drop in rates and about 10% for a 2-point drop, before the sweep-fee effect. The Bank holds $51.6 billion of loans: $19.8 billion securities-based loans to wealth clients, $10.8 billion commercial and industrial, $7.8 billion commercial real estate, $1.7 billion real estate investment trusts, $10.3 billion residential mortgages and $1.2 billion tax-exempt loans. The loan allowance is 0.88% of loans. BASE CASE: $169.05 per share. Earnings start at $8.30 and grow 3% a year for five years, then 2% a year for five years (reaching about $10.62), and are held flat thereafter. Growth credited: steady net new client assets, which have been positive in each of the last three years (7.7%, 5.5% and 3.8% of beginning client assets in fiscal 2023, 2024 and 2025) fed by recruiting and retention and the advisor count rising from 8,712 to 8,943; we credit less than the lowest of those years and taper it. Left out: market appreciation of client assets, margin expansion, new businesses, acquisitions, and share-count shrinkage (diluted shares were 206.6 million in fiscal 2025 versus 216.8 million in fiscal 2016 after adjusting for the 2021 split, and peaked in between; buybacks have largely offset stock-based pay). Flat earnings after year ten rests on a decades-old franchise whose client assets and advisor relationships persist, but nothing more is assumed. The first ten years are worth about $70 per share and everything after about $99. As a bank-and-broker, deposits and borrowings are raw material, earnings are already stated after interest, and no separate debt is subtracted. BEAR CASE: $107.00 per share. We start at $7.00, the owner earnings of fiscal 2021 when short-term rates were near zero, and then run one full credit-and-markets downturn of the 2008-2011 kind. Credit: Federal Reserve data show charge-offs at U.S. commercial banks over 2008-2011 totalled about 5.9% of business loans, 7.3% of commercial real estate loans and 7.4% of single-family mortgages. Applied to the Bank's commercial and industrial ($10.8 billion), commercial real estate and real estate investment trust ($9.5 billion) and residential ($10.3 billion) loans, losses are about $2.1 billion over four years; after the roughly $0.5 billion of provisions fiscal 2022-2025 already carried inside earnings and an assumed 24% tax rate, that is about $1.2 billion or $5.96 per share, spread over years 2 to 5. Securities-based loans, which are secured by client portfolios, are assumed to lose nothing, as are tax-exempt loans. Fees and trading: Raymond James's net income fell 39% from fiscal 2007 ($250 million) to fiscal 2009 ($153 million). We assume non-credit earnings fall 30% in years 2 and 3 (to $4.90), recover to $6.00 and $6.50 in years 4 and 5, and return to $7.00 thereafter. Owner earnings after credit costs are $3.71, $3.11, $4.21 and $5.31 in years 2-5. The first ten years are worth about $42 per share and what follows about $65. Capital is not threatened: the firm reported a 13.1% tier 1 leverage ratio and 24.1% total capital ratio at September 2025 against about $11.2 billion of tier 1 capital, so the $1.2 billion loss would not force dilution. The $107 compares with tangible book value of roughly $55 per share; the franchise is worth more than its capital because it still earns $3 to $7 per share every year of this downturn, a return on tangible equity of roughly 6% at the trough versus about 15% normally. BULL CASE: $221.34 per share. Earnings start at the fiscal 2025 level of $9.62, with fiscal 2026 nine-month diluted earnings per share of $8.52 already 83% of fiscal 2025's full-year $10.30, and grow 5% a year for five years, matching net new asset growth the firm achieved in fiscal 2024 (5.5%), then 3% a year for five years (reaching about $14.23), flat afterward. The first ten years are worth about $89 per share and the period beyond about $132. WHAT COULD MAKE THIS WRONG. (1) Rate cuts could take more from sweep fees and interest than the normal level assumes, or credit losses on the $20 billion of commercial and real estate loans could exceed the industry record. (2) Net new assets have slowed in each of the last two years (7.7%, 5.5%, 3.8%) and a large branch left the independent-contractor channel in fiscal 2025; if that continues, the 3% base growth is too high. (3) A sharp market fall could test the securities-based loans (about $19.8 billion), which we assume lose nothing. (4) The UK regulator has restricted onboarding of new branches and advisors there without its consent, which has had no material impact so far. MARGIN-OF-SAFETY PRICE: $90.00. Confidence: moderate. Reasons: we are fairly sure of the earnings level since five of the last six years were $7.0 to $9.6 per share, but how much of fiscal 2024-2025 was rate-driven is unsettled. The worst plausible outcome is a repeat of 2008-2010 credit losses on a loan book now about $51.6 billion, combined with falling markets and zero rates, which the bear case sizes at $107 and which the firm's capital (13.1% tier 1 leverage) would survive; outcomes no case models include a collapse in securities-based loan collateral or a major compliance failure. If we are wrong about rate sensitivity or net new assets, earnings could settle near $7 per share. The price assumes about a five-year holding period, during which the firm pays a dividend ($0.54 per quarter, $2.00 in fiscal 2025) and retains the rest to fund its bank. At $90 the shares are priced at about 11 times normal earnings and about 1.6 times tangible book value; if the base case plays out over five years, that price implies about 20% a year including dividends, and if the bear case plays out it implies about 10% a year. A higher price leaves too little cushion for the bear case, so the margin-of-safety price is $90.