Stifel Financial Earnings: Net Interest Income Growth Is Losing Steam While Capital Markets Are Subdued

Net interest income growth had been a bright spot for wealth management firms over the previous several quarters, but net interest income growth has stalled and capital markets revenue remains stunted. Stifel reported net income to common shareholders of $148 million, or $1.28 per diluted share, on $1.1 billion of net revenue. Net revenue declined 1% from the previous year, while net income declined 10%. The small decline in net revenue is from $141 million of additional net interest income offsetting declines in trading, investment banking and asset management. The drop in net income is from a severe compression in the institutional group's operating margin to 10%, down from 22% the previous year. We had previously remarked that operating margins in the institutional group were abnormally high following COVID-19 at upward of 25% compared with a pre-COVID-19 range of 15% to 20% and that they were destined to normalize lower. We are maintaining our $81 fair value estimate for no-moat-rated Stifel Financial and assess shares are moderately undervalued.