Stifel Financial buys back $91 million of its depressed shares

CEO Ronald Kruszewski says brokerage “took advantage of the decline in equity markets.”

Stifel Financial Corp. CEO Ronald Kruszewski said the company took advantage of the decline in equities at the start of the year to buy back $91.4 million of its shares.

The first quarter saw a broad sell off in the market, with brokerage firms faring poorly in general. Stifel’s stock closed the quarter at $29.88, a 31.6% decline.

Stifel repurchased 2.7 million shares at an average price of $33.85 and “took advantage of the decline in equity markets,” Mr. Kruszewski told analysts during the company’s earnings call Monday. “We’ll always be opportunistic as to when we buy back our stock, and we’ll weight those returns versus the returns that the market may provide.”

The buyback was unusual when compared to the last five years, during which Stifel repurchased less than $40 million of shares per year, according to Morningstar.

The 52-week high for Stifel shares was last June, when they reached $59.93.

Stock buybacks by brokerage firms can prove tricky. LPL Financial last fall bought 4.3 million shares from an insider, TPG Capital, at $43.27 a share. LPL’s share price has fallen since, and was trading Tuesday afternoon at $24.61, or 43% less than what LPL paid TPG Capital. LPL’s ill-timed buyback has spurred at least one potential class action suit against the firm.

Stifel’s stock buyback was well executed, according to Michael Wong, an analyst for Morningstar.

“Management showed that it believes the company’s shares are undervalued,” he wrote in a note on Tuesday. “Even after these repurchases and increasing its balance sheet by about 6% sequentially to $14.2 billion, we still estimate that Stifel has more than $150 million of excess capital to deploy.”
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“At current prices, we believe share repurchases are materially accretive to shareholder value,” Mr. Wong wrote. “Additionally, the Department of Labor’s fiduciary rule and the general economic environment should lead to acquisition opportunities for Stifel Financial.”

Stifel Financial reported net revenues of $620.0 million during the first three months of 2016, an increase of 10.5% compared with the year-ago quarter and net income of $27.1 million, or $0.36 per diluted common share, a 37.2% decline from the year ago quarter.

Stifel’s stock rallied on Tuesday, closing the day up more than 10% at $34.22.