What Happened?
Shares of investment banking firm Jefferies Financial Group (NYSE: JEF) fell 5.6% in the afternoon session after multiple shareholder rights law firms announced investigations into the company for potential violations of securities laws.
The probes focused on whether Jefferies issued misleading statements or failed to disclose key information to investors regarding its significant financial exposure to the recently collapsed auto-parts maker, First Brands Group. Previously, on October 8, the company had admitted to approximately $715 million in exposure to First Brands' receivables, which represented about 25% of the trade finance portfolio of its Point Bonita subsidiary. That news caused the stock to fall by about 8%. The continued pressure on the stock came as the company's deep ties to First Brands were expected to draw questions during its annual investor day.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Jefferies? Access our full analysis report here.
What Is The Market Telling Us
Jefferies’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock gained 3.3% on the news that the company reassured investors that its exposure to the bankrupt auto-parts supplier First Brands Group was limited and any potential losses would be manageable.
The company's CEO and President released a letter stating any financial impact would be "readily absorbable." This communication followed a significant slump in Jefferies' stock, which had fallen over the previous 10 sessions due to investor concerns about the First Brands bankruptcy. In the statement, Jefferies aimed to correct what it termed inaccurate information, highlighting its sound financial health and ample cash reserves. The bank's leadership also conveyed that they believed the negative market reaction was "meaningfully overdone" and expected the stock to correct as the situation became better understood by the public.
Jefferies is down 36.4% since the beginning of the year, and at $50.24 per share, it is trading 38.5% below its 52-week high of $81.75 from December 2024. Investors who bought $1,000 worth of Jefferies’s shares 5 years ago would now be looking at an investment worth $2,461.
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