Headwinds For Stifel 'Underappreciated'; Credit Suisse Downgrades To Underperform

Credit Suisse’s Christian Bolu downgraded the rating for Stifel Financial Corp SF from Neutral to Underperform, while reducing the price target from $44 to $27. He mentioned that the current stock valuation does not fully reflect the revenue, expense and structural regulatory headwinds faced by the company.
Analyst Christian Bolu expects Stifel’s already-weak fundamentals to deteriorate further. The near 50 percent decline in the company’s M&A revenue backlogs, the weakest start to ECM in six years and a higher-than-peer credit trading exposure are expected to have a negative impact on profitability.
Stifel’s “go forward expense flexibility” is likely to be limited by the buildup of previous year’s unrecognized compensation costs. The Credit Suisse report added that fiduciary rules may exert pressure on the company’s commissions over time.
“We are also watching for the impact of FINRA/MSRB pricing transparency proposals on retail bond trading revenues,” Bolu wrote.
The analyst recommended investor to focus on Stifel’s GAAP performance as acquisition related adjustments have boosted the company’s EPS by 87 percent YTD. On a GAAP basis, the company’s EPS growth and ROE are weaker than its peers.
The EPS estimates for 2016, 2017 and 2018 have been reduced from $3.25 to $2.20, from $3.60 to $2.35 and from $4.05 to $2.80, respectively.