Will Jeffries Group Continue to Wheel, Deal, and Reward Investors?

With shares of Jeffries Group (NYSE:JEF) trading at around $17.81 is JEF an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

It has been a great year for Jeffries Group. This company was part of the bailout package for Knight Capital (NYSE:KCG), which has paid off handsomely thus far (and there is even more potential,) Leucadia (NYSE:LUK) will finalize its purchase of the company in early 2013 where shareholders will receive .81 of a share of Leucadia for every share they own, and the stock is up over 45%.

Jeffries Group is not a stock you want to bet against right now. If Knight Capital is acquired, then Jeffries Group will benefit. In regards to the Leucadia deal, this will lead to a $9 billion company. They will be involved in everything you can think of, from energy production facilities to medical product developers to hotels and casinos.

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There are still fears of exposure to the European Debt Crisis, but that’s the case for any company with exposure in Europe right now, and you can’t live in complete fear all the time. In the long run, the best companies with the most strategic positions will excel. Now let’s take a look at some numbers.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Jeffries Group is weak. This would usually be cause for concern. However, in this case, the company in focus is doing something about it. They’re taking a very proactive approach in regards to moving the business in the right direction. Their balance sheet is also stellar, which is excellent news.

Debt-To-Equity

Cash

Long-Term Debt

JEF

4.36

$15.76 Billion

$4.86 Billion

KCG

3.30

$1.62 Billion

$4.38 Billion

SF

.32

$341.91 Million

$433.84 Million

 

T = Technicals on the Stock Chart Are Mixed

Jeffries Group has performed poorly over the past three years. However, the past year has been great. While Knight Capital is down over 74 percent and Stifel Financial Corporation (NYSE:SF) is down 4.80 percent, Jeffries Group is up almost 50 percent over the past year.

1 Month

Year-To-Date

1 Year

3 Year

JEF

15.06%

32.15%

45.85%

-21.40%

KCG

25.48%

-72.08%

-74.40%

-1.79%

SF

-6.56%

-5.27%

-4.80%

-17.93%

 

At $17.81, Jeffries Group is currently trading above all its averages.

50-Day SMA

15.05

100-Day SMA

14.40

200-Day SMA

14.90

 

E = Earnings and Revenue Are Consistent

Jeffries Group has seen consistent annual revenue growth. The only blip was in 2008, which shouldn’t shock anyone. Earnings have also been consistent.

2007

2008

2009

2010

2011

Revenue ($)in billions

1.57

1.01

2.16

2.19

2.55

Diluted EPS ($)

.92

-3.30

1.35

1.09

1.28

 

Revenue and earnings have also been consistent on a quarterly basis. There was a big jump in revenue from Q3 2001 to Q3 2012.

8/2011

11/2011

2/2012

5/2012

8/2012

Revenue ($)in millions

509.28

553.98

779.97

711.03

738.94

Diluted EPS ($)

1.16

-.66

-.58

1.47

-.39

 

T = Trends Support the Industry

It wasn’t too long ago that Knight Capital almost went belly up. Then again, it’s not surprising that every company associated with the bailout of Knight Capital has made out well. It’s a pretty simple deal to pool money into a company in need, watch the stock price inflate, and then profit from it.

Conclusion

The annual earnings growth estimate for Jeffries Group over the next five years is 16 percent, which is high. The yield should also rise from 1.70 percent to 1.86 percent. The Trailing P/E is 14.29 and the Forward P/E is 11.79. The deals Jeffries Group have been involved in also show great promise. Basically, it would be difficult to find bad news. Despite an unsteady overall economic environment, Jeffries Group is an OUTPERFORM.

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