Jefferies Stock Is Upgraded. Concerns Over First Brands Bankruptcy Are Overblown, Say Analysts.

Oppenheimer analysts upgraded Jefferies Financial Group to Outperform from Market Perform with an $81 price target. (Dreamstime)

Key Points

• Oppenheimer upgrades Jefferies Financial to Outperform with a price target of $81, citing a compelling investor day presentation.
• Coming into Friday, Jefferies’ shares have fallen 38% this year. Oppenheimer believes a recovery is coming.
• Analysts believe Jefferies’ exposure to First Brands is limited and will have minimal financial impact, despite market concerns.

Jefferies Financial Group has been in the news for all the wrong reasons following the collapse of auto-parts supplier First Brands, but analysts at one firm said they’re “buyers of the long-term opportunity.”

Oppenheimer analysts upgraded shares of the investment bank to Outperform from Market Perform on Friday with a price target of $81. Shares were rising 4.8% to $51.13, with the new target suggesting more than 58% upside.

The firm downgraded Jefferies to Market Perform in March due to fears that an expected “major rebound in M&A activity” would fail to materialize.

While shares have lagged the S&P 500 this year despite a partial recovery in mergers and acquisitions, plunging 38% against the broader market’s 13% gain, Oppenheimer believes a recovery is coming, though it may take longer than some investors are hoping.

The upgrade hinges on what Oppenheimer calls a “compelling” investor day presentation, which served to alleviate concerns over the fallout related to First Brands, the doomed auto-parts supplier that filed for bankruptcy in September.

Analysts conceded that Jefferies “does have a specific issue with its First Brands exposure,” but this “in reality very limited.” While the stock has been beaten down amid a string of headlines about First Brands, Oppenheimer expects the exposure “to have little if any financial impact.”

Moreover, much of the stock’s underperformance appears to reflect “atmospheric” credit concerns, with credit managers, banks, and business development companies all facing increased pressure “for reasons we consider dubious.”

“While the market is consumed with credit worries,” Oppenheimer wrote, investor day focused on boosting margins and enhancing returns following a long period of outsized investment in the Jefferies platform. “We think that’s a very credible story,” analysts added.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com