PJC Piper Jaffray Companies

Piper Jaffray Companies (PJC) hit its 52 week high on Oct. 17; the same day this investment brokerage company reported solid third-quarter results, including a 125% positive earnings surprise. With a year-to-date return of about 43.4% and a long-term expected earnings growth rate of 16.0%, this Zacks #1 Rank (Strong Buy) looks like a solid growth pick.

Impressive Q3 Results On Oct.17, Piper Jaffray’s third quarter earnings from continuing operations of 72 cents per share significantly outpaced the Zacks Consensus Estimate by 125.0%. This marked PJC’s third straight quarter with a positive earnings surprise. The result also surged by 227.3% from last year. The better-than-expected results were largely driven by considerable top-line growth, partially offset by higher operating expenses.

Net revenue jumped 38.7% year over year to $133.0 million, primarily driven by significant growth in institutional brokerage revenue. Moreover, total non-interest expenses surged 21.5% to $110.2 million, mainly due to a 30.1% rise in compensation and benefits costs.

As of September 30, 2012, assets under management were $13.8 billion, increasing 23.2% from $11.2 billion as of September 30, 2011. It also advanced 8.7% from $12.7 billion as of June 30, 2012. Furthermore, tangible book value per share stood at $31.30, compared with $29.10 in the prior-year quarter and $29.84 in the previous quarter.

Earnings Estimates Advancing

Over the past 60 days, the Zacks Consensus Estimate for 2012 improved 31.4% to $1.84 per share with 2 of 3 estimates moving higher. For 2013, the Zacks Consensus Estimate increased 7.9% to $2.33 over the same time frame, as all four estimates advanced.

The Zacks Consensus Estimate for 2012 reflects year-over-year growth of about 113.6%, while the expected growth rate for 2013 is 26.6%.

Attractive Valuation

Shares of Piper Jaffray currently trade at 15.8x 12-month forward earnings, a 17% discount to the peer group average of 19.0x. Its price to book ratio of 0.67 is at a 9.5% discount to the industry median of 0.74.

Additionally, Piper Jaffray has a trailing 12-month ROE of 3.5%, compared with the peer group average of 2.7%. This implies that the company reinvests its earnings more efficiently compared with its industry peers.

Moreover, given the long-term earnings growth projection of 16.0%, the PEG ratio comes in at 0.98, a 2.0% discount to the benchmark of 1 for a fairly priced stock. Thus, the expected long-term earnings growth is currently priced at a discount.

The stock has been continuously outperforming its 200 and 50 days moving averages over the last three months, exhibiting steadfast growth. Moreover, the year-to-date return for the stock is 43.4%, compared with the S&P 500’s return of 12.8%.

Headquartered in Minneapolis, Minnesota, Piper Jaffray provides investment banking, institutional brokerage, asset management and related financial services to mainly institutional clients. Founded in 1895, the company has its operations in the U.S., Asia and Europe. Moreover, the company has a market cap of about $507.6 million. Virtus Investment Partners Inc. (VRTS) is the other Zacks #1 Rank (Strong Buy) stock in the same sector.

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