While shares of most brokerage houses have fallen from their highs, Jefferies Group (JEF) has been on an upswing, soaring from 27 on Sept. 20 to 46 on May 8. What's its secret weapon? Increased earnings derived from solid investment-banking results--despite the slow economy and market malaise--have given Jefferies an edge that eludes its rivals. In the first quarter, Jefferies beat Street forecasts, with earnings of 65 cents a share, prompting analysts to raise their 2002 and 2003 estimates. And what's firing up investment banking at Jefferies, where revenues from trading stocks and bonds for institutions account for 70% of the total? "Our singular focus on small-to-mid-cap companies has paid off," says CEO Richard Handler. Jefferies is probably the only brokerage that is hiring: "We continue to hire qualified laid-off producers who are familiar with small companies," says Handler. "We are working on 35 restructuring deals right now."
Analyst Marie Ogurick of independent research firm Sidoti has raised her 2002 earnings estimate from $2.63 a share to $2.72 and upped her 2003 figure from $3.20 to $3.30. She expects 2002 revenues to rise 10%, to $861 million, and an additional 20% in 2003, to $1.03 billion. "Jefferies is a solid institutional franchise with inherent value--given its risk, return, and growth prospects," says Ogurick. By Gene G. Marcial