Middle-market investment banking firm Piper Jaffray
Despite the decreases in revenue and net income, there was a silver lining. The company topped analysts' estimates for their net income by 11%. Piper Jaffray's results also reflect an increase in net income from continuing operations of 20% over its 2006 second-quarter earnings. "We are pleased with our third-quarter financial results given the more challenging market conditions," said Chairman and CEO Andrew S. Duff.
Based on recent developments and the company's third-quarter results, I believe that this stock presents a good long-term investment opportunity for Fools. The $510 million in after-tax proceeds the company received from the sale of its Private Client Services business has been put to good use. In August, the company used $180 million to pay off subordinated debt. The firm also used the extra cash to complete a repurchase of $100 million of its common stock amounting to approximately 7% of its common shares outstanding. This repurchase is a positive signal for shareholders, since it indicates that management believes that the company's stock price is reasonably valued.
Two primary risks associated with this investment are room for future growth and the general state of the equity markets. The company is in an ultra-competitive market saturated with financial service firms such as Franklin Resources
Over the long term, I think these risks will be mitigated by the company's pricing power, diverse line of services, and commitment to expansion. Although advisory services revenue dropped by 26% when compared to the prior year's third quarter, the decline was offset by other areas. The other two components of Piper Jaffray's investment banking revenue, equity financing and fixed income underwriting, were both up significantly when compared to Q3 2005 and Q2 2006. Equity financing revenue was up 53% compared to the year-ago quarter and up 8% compared to the prior quarter. Fixed income underwriting revenue increased 20% compared to Q3 2005 and 21% from Q2 2006. The increases are primarily attributable to higher fees charged per transaction.
In terms of expansion, the company recently opened new offices in Charlotte, Madrid, and Shanghai. During the most recent quarter, the firm also entered into a strategic partnership with CITGroup
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned.