The post-election rally is notable for its "indiscriminate" buying of financial sector names, particularly large-caps, says Nomura's Steven Chubak. That's fine, he says, as it leaves "a very compelling" buying opportunity in a number of small- and mid-cap names which are set to be big winners under a Trump administration.
He upgrades Raymond James Financial (RJF +1.6%) and TD Ameritrade (AMTD +1.4%) to Buy, and even suggests a pair trade of long Stifel (NYSE:SF) and Raymond James vs. a short in LPL Financial (LPLA -0.4%).
Cut are made to Lazard (LAZ -1.1%) and Greenhill (GHL -3.6%) as the Trump rally overlooks the headwinds of protectionism and financing costs.
Turning to big-caps, Chubak is growing more cautious on M&A as he sees deal risks rising under Trump. He suggests a buy of Bank of America (BAC -0.8%) vs. a sale of Goldman Sachs (GS -0.2%).
Rating Moelis (NYSE:MC) a Buy, analyst Michael Needham, cites a healthy U.S. M&A environment, and the company's leverage to lower taxes. It deserves a valuation premium to the sector, he says.
Another Buy is Houlihan Lokey (NYSE:HLI) as it's also in position to benefit from domestic M&A and lower taxes.
Lazard (NYSE:LAZ) is an Underperform though, thanks to near-term headwinds in emerging markets, currencies, and restructuring deals. Risks to his bearish outlook include the company announcing a special dividend or a tax-related/structural change.
Also an Underperform is Greenhill (NYSE:GHL) thanks to European exposure and a pricey valuation.
Evercore (NYSE:EVR) and PJT Partners (NYSE:PJT) are rated Neutral.
Smaller-cap investment banks have been in the green every day since the Trump victory, among them Houlihan Lokey (HLI +3.3%), which today has broken through to another all-time high.
UBS's Brennan Hawken says that while restructuring activity may decline amid more optimism for the economy, boosted M&A potential, fairness opinions, and other services HLI offers could more than make up for it, and he's boosting price targets across his boutique IB coverage.
More: Corporate tax reform under Trump would be of "meaningful benefit" to HLI given its significant U.S. exposure (86% of revenue). Lazard (NYSE:LAZ) and Invesco (NYSE:IVZ) might even consider changing their domiciles to the U.S. to take advantage.
The company has boosted its share repurchase authorization by $236M to $400M. To help fund, Lazard (NYSE:LAZ) is selling $300M of 10-year paper. Just under $100M will be used to pay off notes expiring in June, and the rest will go towards buybacks and other general corporate purposes.
Lazard (NYSE:LAZ) announces the purchase of Toronto-based financial advisory boutique Verus Partners. Its co-founder and managing partner Brian Hanson has been named Chairman and CEO, Lazard Canada Investment Banking, effective immediately.
"Uncertainty always slows down M&A activity," says Evercore Partners (EVR -12.8%) CEO Ralph Schlosstein. "The price that buyers are willing to pay for companies weakens a little bit because there’s more risk, and more uncertainty.”
Along with Evercore, Lazard (LAZ -11.5%), Moelis (MC -6.9%), Greenhill (GHL -9.5%), and PJT Partners (PJT -10.7%) are posting near 20% two-day declines since the U.K.'s Brexit vote.
Lazard, for one, got 34% of its 2015 revenue from Europe, and Evercore generated 23% from "Europe and other" regions.