Jefferies shares rise as CEO hails 'green shoots' in deal-making

By Steve Gelsi

Oppenheimer reiterates outperform rating on Jefferies investment bank with the view that capital markets activity has bottomed

Jefferies Financial Group Inc.'s stock is up Wednesday, despite losses in banking-sector stocks, after the investment bank said it is seeing signs of an uptick in deal activity.

"The month of June has brought green shoots in our investment banking and capital markets business and we are growing increasingly optimistic about the return to a more normal environment," said CEO Richard Handler and President Brian Friedman in a statement that was included in the bank's second-quarter earnings results.

The executives said they're seeing "a more forward-looking attitude from our investor base and a stronger willingness from our corporate clients to engage in capital formation and other major strategic initiatives."

Jefferies's (JEF) stock rose 3.5% despite losses in the broad equities market and in bank stocks. The boost pushed the bank's stock into positive territory for 2023, with a year-to-date gain of 0.8%.

The KBW Nasdaq Bank Index is down 0.8%, and the SPDR S&P Bank exchange-traded fund (KBE) is lower by 0.8%. The S&P 500 is moving lower by 0.2%.

Late Tuesday, Jefferies reported second-quarter earnings of 5 cents a share, below the analyst consensus view of 27 cents a share, according to estimates compiled by FactSet. The bank's second-quarter revenue of $1.04 billion was about $1.9 million below estimates.

Oppenheimer analyst Chris Kotowski reiterated an outperform rating on Jefferies and said the bank's loss of $72 million on an investment by its merchant bank in the Italian telecom company OpNet, formerly called Linkem, affected its earnings by 21 cents a share. The results reinforced the bank's view "that capital markets activities and [Jefferies] core revenues are probably at a bottom."

Core revenue at Jefferies was "pretty much" in line with expectations, with trading a bit better, asset-management revenue slightly lower and investment- banking revenue "spot on" compared with Oppenheimer's targets, he said.

Expenses came in about $37 million higher than expected, but "this is something we can live with because it's lumpy at cyclical bottoms," Kotowski said.

Meanwhile, KBW analysts reiterated a market perform rating on Jefferies and said the bank missed profit expectations because of higher compensation expenses and the $72 million pretax loss in its merchant-banking unit, which "sounds likely to be more one-time in nature."

Also read: Bank stocks rise ahead of Fed stress test results as analyst sees 'relatively calm' outcome

-Steve Gelsi

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06-28-23 1404ET

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