By Steve Eder
NEW YORK, Oct 20 (Reuters) - Jefferies Group Inc, an investment bank that focuses on mid-sized companies, reported higher-than-expected quarterly earnings on Tuesday as it benefited from strength in its fixed-income and high-yield operations.
But the company's shares slid 3.7 percent on concerns about a run-up of the share price ahead of earnings. The shares closed at $29.04, well above the low set last November.
'It is just a classic sell on the news,' said Michael Hecht, an analyst with JMP Securities, adding that Jefferies shares have been trading at a high valuation.
Hecht said investors also are wary about fixed-income and high-yield sustainability, especially after management's 'body language' expressed caution in those areas during a call with analysts.
Concerns about the future aside, Jefferies third quarter was a robust one.
Third-quarter net income available to common shareholders was $86.3 million, or 42 cents per share, compared with a year- earlier net loss of $31.3 million, or 18 cents per share.
Analysts on average expected 28 cents per share, according to Thomson Reuters I/B/E/S.
Net revenue soared 155 percent to a record $700 million.
The strong quarter was aided by new business lines, including expansion into healthcare and construction of a bigger investment grade trading business. Jefferies also kept compensation down.
'While expectations were high, Jefferies beat them anyway with record results, performing well not only on the top line but also with efficiency,' David Trone, an analyst with Fox- Pitt Kelton, said in a research note.
An upswing in trading income has played a big role in the optimism surrounding the firm.
Fixed-income trading revenue jumped to $312.7 million in the third quarter from $72.9 million a year earlier. High-yield trading revenue rose to $94.9 million.
Investment banking revenue, however, declined to $122.5 million from $130.1 million.
The company also announced Tuesday that has commenced a $300 million debt offering to raise capital for general purposes. Doug Sipkin, an analyst with Pali Capital, said the move shows that Jefferies is in a capital intensive business.
Jefferies also has an agreement with Leucadia National Corp. Leucadia owns a 30 percent stake in Jefferies and can begin selling in April 2010.
During a call with analysts, Chief Executive Richard Handler said the firm 'has never been stronger,' reflecting his confidence after Jefferies added more than 200 employees during the quarter.
Handler used the uncertainty that struck its larger competitors on Wall Street amid the financial crisis to add to Jefferies' ranks.
'The best time to expand and bring in talented people is when the world is in disarray,' Handler said. 'We, unfortunately, had a very long window when the world was in disarray.'
(Reporting by Steve Eder; editing by Lisa Von Ahn, John Wallace, Andre Grenon and Steve Orlofsky) Keywords: JEFFERIES/ (Reuters email: steve.eder@reuters.com; +1 646 223 6069) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Oct 20 (Reuters) - Jefferies Group Inc, an investment bank that focuses on mid-sized companies, reported higher-than-expected quarterly earnings on Tuesday as it benefited from strength in its fixed-income and high-yield operations.
But the company's shares slid 3.7 percent on concerns about a run-up of the share price ahead of earnings. The shares closed at $29.04, well above the low set last November.
'It is just a classic sell on the news,' said Michael Hecht, an analyst with JMP Securities, adding that Jefferies shares have been trading at a high valuation.
Hecht said investors also are wary about fixed-income and high-yield sustainability, especially after management's 'body language' expressed caution in those areas during a call with analysts.
Concerns about the future aside, Jefferies third quarter was a robust one.
Third-quarter net income available to common shareholders was $86.3 million, or 42 cents per share, compared with a year- earlier net loss of $31.3 million, or 18 cents per share.
Analysts on average expected 28 cents per share, according to Thomson Reuters I/B/E/S.
Net revenue soared 155 percent to a record $700 million.
The strong quarter was aided by new business lines, including expansion into healthcare and construction of a bigger investment grade trading business. Jefferies also kept compensation down.
'While expectations were high, Jefferies beat them anyway with record results, performing well not only on the top line but also with efficiency,' David Trone, an analyst with Fox- Pitt Kelton, said in a research note.
An upswing in trading income has played a big role in the optimism surrounding the firm.
Fixed-income trading revenue jumped to $312.7 million in the third quarter from $72.9 million a year earlier. High-yield trading revenue rose to $94.9 million.
Investment banking revenue, however, declined to $122.5 million from $130.1 million.
The company also announced Tuesday that has commenced a $300 million debt offering to raise capital for general purposes. Doug Sipkin, an analyst with Pali Capital, said the move shows that Jefferies is in a capital intensive business.
Jefferies also has an agreement with Leucadia National Corp. Leucadia owns a 30 percent stake in Jefferies and can begin selling in April 2010.
During a call with analysts, Chief Executive Richard Handler said the firm 'has never been stronger,' reflecting his confidence after Jefferies added more than 200 employees during the quarter.
Handler used the uncertainty that struck its larger competitors on Wall Street amid the financial crisis to add to Jefferies' ranks.
'The best time to expand and bring in talented people is when the world is in disarray,' Handler said. 'We, unfortunately, had a very long window when the world was in disarray.'
(Reporting by Steve Eder; editing by Lisa Von Ahn, John Wallace, Andre Grenon and Steve Orlofsky) Keywords: JEFFERIES/ (Reuters email: steve.eder@reuters.com; +1 646 223 6069) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.