Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?Piper Jaffray Companies (NYSE: PJC), a Minneapolis-based investment banking firm, serves the capital needs of a wide array of corporate and governmental entities.
With operations in corporate finance, municipal finance, institutional equity, bond sales, trading and private placements, Piper serves clients throughout the United States and Europe. Recently, the company made a major investment in China, viewing that country as having high levels of capital needs, as well as a growing institutional investor base.
Piper Jaffray has its roots in the commercial paper business, tracing its history back to the 1880s. For much of its 20th century existence, Piper operated as a regional retail distribution securities company.
Following a stressful period as a wholly owned subsidiary of U.S. Bancorp (NYSE: USB), the remaining principals of the former Piper Jaffray unwound the merger and emerged as an independent securities firm without a retail distribution arm.
Since becoming independent and going public, Piper has experienced wide swings of revenues and profitability. During the process, the company developed a highly regarded research capability, and a strong institutional sales and placement capability, which was recently rated the third best in the country by Institutional Investor magazine.
An ill-timed foray into the municipal market tender option program (TOP) business has depressed earnings for the last few quarters. The unwinding of this business has resulted in capital charges, which led to overall losses for the period.
The principal concern impacting future earnings, however, centers on the relative dearth of new equity and municipal debt offerings in the coming year and beyond.
Piper relies extensively on its forte of underwriting new issue corporate equities and municipal bonds. The continued reluctance of banks to lend and investors to commit in these areas is likely to befuddle participants in these markets through 2009, and well into 2010.
The question is whether Piper has the staying power to remain independent in the face of these market dynamics.
A relatively strong balance sheet combined with a high degree of operational efficiency suggests that capital will not be a major concern of the company going forward. With a current ratio of over 3.5 and a debt-to-equity ratio of 0.075, there are no short-term demands on the company's balance sheet.
Overall business dynamics are, however, of greater concern. It remains to be seen whether a relatively small investment banking firm operating in a highly unstable market can retain investor confidence and emerge as a profitable concern when economic health returns to the globe.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates PJC a B or Buy.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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