Jefferies: A Decent Value Ahead Of Earnings (NYSE:JEF)

Looking for some relative strength in this tough market? Mid-caps that are growing their bottom lines could be a place to look. The WisdomTree Midcap Earnings Fund (EZM) is up more than 7 percentage points on the S&P 500 over the last year, though absolute performance is not particularly impressive at -13% YoY. Still, one name in the ETF is by just 11% in the last 52 weeks, outpacing the broad market after notching a 2022 low in mid-June and then holding that level during the Q3 pullback. Ahead of earnings, are shares of Jefferies a buy? Let’s weigh the evidence.

Alpha Spot: Mid-Cap Earnings Growers

According to Fidelity Investments, Jefferies Financial Group Inc. engages in investment banking and capital markets, and asset management businesses in the Americas, Europe, the Middle East, Africa, and Asia. The company operates in Investment Banking and Capital Markets, Asset Management, Merchant Banking, and Corporate segments.

The New York-based $7.9 billion market cap company trades at a low 9.3 trailing 12-month GAAP price-to-earnings multiple and pays a dividend nearly twice that of the S&P 500 at 3.5%, according to The Wall Street Journal.

On valuation, the stock garners a solid B rating from Seeking Alpha due to its low earnings multiples on a trailing and forward basis. Meanwhile, investors should be encouraged that Berkshire Hathaway has taken a new stake in Jefferies as of the end of the third quarter. Back in September, the company reported a better-than-expected Q3, and the stock made an interim bottom around that date. The Financials sector stock also features a price-to-book ratio that’s below 1 and significantly under the sector median. I could see a 20% or more premium to the current valuation in the coming year – the company would still be somewhat cheap there. Still, earnings are seen as dropping YoY as macro headwinds could weigh on JEF’s capital markets activities.

Jefferies: A Low Price/Book Ratio And P/E

JEF: 2023 Sales and EPS Expected To Fall Slightly From 2022

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q4 2022 earnings date of Monday, Jan. 9 after market close. The following earnings report is projected to take place on Monday, March 27. The calendar is light on volatility catalysts aside from the Q4 report.

Corporate Event Calendar

The Options Angle

Data from Option Research & Technology Services (ORATS) show a consensus Q4 EPS estimate of $0.57 which would be a sharp 57% drop from per-share profits earned in the same period a year ago. Implied volatility on the stock is a bit high at nearly 40%, per ORATS, and the options market has priced in a 5.3% earnings-related stock price swing using the options expiring soonest after the reporting date. Looking at history, shares have traded lower post-earnings in three of the past four events, but moves have been muted. Overall, I don’t see the options as all that cheap given modest stock price changes after the company reported in the past. Let’s see what the chart says on a directional bet.

JEF Options Suggest A Small Earnings Move Upcoming

The Technical Take

There’s a lot drawn on the chart of JEF below. Shares featured bearish negative divergence when they made what could be a minor false breakout back in November. The stock has since retreated below the key $34 to $36 zone that has been a significant battleground in the past. I think the stock will ultimately test an uptrend support line from the June low under $26. The good news is the overall pattern is a bullish rounded bottom in my eye after the stock first broke above a downtrend line off the November 2021 high. Buying on a pullback to the low $30s should shape up well. A stop under the October low of $28.76 would be prudent.

JEF: Shares Pulling Back To Trendline Support

The Bottom Line

With shares showing a good value still, and with a chart that’s constructive in the broad sense, I assert that long-term investors can be long shares here while short-term traders should expect a bit of a pullback into the low $30s around the upcoming earnings event.