Markets
MS

Why Is Morgan Stanley (MS) Up 8.5% Since the Last Earnings Report?

It has been about a month since the last earnings report for Morgan StanleyMS . Shares have added about 8.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Morgan Stanley Tops Q4 Earnings; Bond Trading Triples

Impressive bond trading drove Morgan Stanley's fourth-quarter 2016 earnings from continuing operations of $0.81 per share, which handily surpassed the Zacks Consensus Estimate of $0.65. Further, this shows an 88% surge from the prior-year quarter, which excludes DVA. Results in the reported quarter include net discrete tax benefits of $135 million.

A drastic surge in bond trading revenues, along with modest growth in equity trading revenues, was primarily responsible for significant improvement in earnings. Further, higher bond underwriting fees and advisory revenues supported the results. Also, the company's capital ratios remained strong.

However, weakness in equity underwriting income (due to weak IPO market) and lower net interest income (owing to a fall in corporate loans) were the downsides. Moreover, a rise in compensation costs resulted in higher operating expenses.

Net income applicable to Morgan Stanley was $1.7 billion, up 83% year over year.

Improvement in Trading Supports Revenue, Costs Flared Up

Net revenue amounted to $9.0 billion, a jump of 17% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $8.5 billion.

Net interest income was $883 million, down 15% from the year-ago quarter. This was largely due to a drastic rise in interest expense. On the other hand, total non-interest revenue of $8.1 billion grew 21% year over year, primarily supported by improvement in trading and investments.

Total non-interest expenses were $6.8 billion, up 8% year over year. The rise came on the back of a 12% improvement in compensation and benefits.

Quarterly Segmental Performance

Institutional Securities (IS): Pre-tax income from continuing operations was $1.3 billion, up 142% year over year. Net revenue of $4.6 billion rose 35% from the prior-year quarter. The improvement was primarily attributable to a significant increase in FICC income, higher equity trading revenue and advisory revenues, partly offset by lower underwriting fees.

Wealth Management (WM): Pre-tax income from continuing operations totaled $891 million, an increase of 16% on a year-over-year basis. Net revenue was $4 billion, up 6% year over year, driven by higher asset management fee revenues and net interest income. These were, nevertheless, partially countered by a fall in transactional revenues.

Investment Management (IM): Pre-tax income from continuing operations was $28 million, tanking 77% from the year-ago quarter. Net revenue was $500 million, a fall of 19% year over year. The decline reflected losses on sales and markdowns of legacy LP investments in third party sponsored funds.

As of Dec 31, 2016, total assets under management or supervision were $417 billion, up 3% on a year-over-year basis.

Strong Capital Position

As of Dec 31, 2016, book value per share was $36.99, up from $35.24 as of Dec 31, 2015. Tangible book value per share was $31.98, up from $30.26 as of Dec 31, 2015.

Morgan Stanley's Tier 1 capital ratio Advanced (Transitional) was 19.0%, up from 17.4% in the year-ago quarter and Tier 1 common equity ratio Advanced (Transitional) was 16.8%, up from 15.5% in the prior-year quarter.

Share Repurchases

During the reported quarter, Morgan Stanley bought back around 27 million shares for nearly $1.0 billion. This was part of the share buyback program announced by the company, under which shares worth up to $3.5 billion can be repurchased through second-quarter 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimates. There have been two revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 9.11% due to these changes.

Morgan Stanley Price and Consensus

Morgan Stanley Price and Consensus | Morgan Stanley Quote

VGM Scores

At this time, Morgan Stanley's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Morgan Stanley (MS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MS

Other Topics

Earnings

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More