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Jefferies to Benefit From Increased Investment Banking Momentum, Oppenheimer Says

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Jefferies to Benefit From Increased Investment Banking Momentum, Oppenheimer Says

Jefferies Financial (JEF) is poised to benefit from increased investment banking momentum in the third quarter, Oppenheimer said Thursday.

The brokerage raised Jefferies' investment banking outlook to $1.274 billion from $1.059 billion, driven by merger and acquisition and equity underwriting.

That pushed Oppenheimer's third-quarter earnings-per-share estimate for Jefferies to $1.06 from $0.67. Five analysts polled by FactSet expect $1 on a GAAP basis.

The investment banking and capital markets firm is scheduled to report latest financials on Sept. 28.

Jefferies' shares closed 1.1% higher on Thursday, but have fallen nearly 23% this year.

JPMorgan Chase (JPM), Morgan Stanley (MS), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) all posted strong second-quarter results in July amid trading and investment banking fee gains.

Oppenheimer is generally cautious on the large-cap investment banks because their earnings beats have been driven by market trading, rather than a recovery in advisory and corporate deal-making, analysts Chris Kotowski and John Coffey said.

Jefferies has derived 58% of its capital markets revenue from investment banking year-to-date, compared with 22% at Goldman, according to the Oppenheimer note.

"We still believe in the likelihood of an M&A revival, and think (Jefferies) is exceptionally well positioned to benefit," Kotowski and Coffey wrote. The company's "forward earnings are particularly tied to a sponsor-driven M&A rebound and not so dependent on sustained robust trading activity."

Oppenheimer has an outperform rating on Jefferies' stock.

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