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Morgan Stanley (MS) Stock Has Soared Since Earnings, Can the Trend Continue?
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It has been about a month since the last earnings report for Morgan Stanley(MS - Free Report) . Shares have added about 19.01 % in the past month, easily cruising past broad market performances in that time frame.
Will the recent positive trend continue leading up to their next earnings release, or is the stock 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.
Recent Earnings
Morgan Stanley Tops Q3 Earnings, Bond Trading Surges
Significant improvement in trading revenues drove Morgan Stanley’s third-quarter 2016 earnings from continuing operations of $0.80 per share, which easily surpassed the Zacks Consensus Estimate of $0.64. Further, this shows a 138% jump from the prior-year quarter, which excludes DVA.
A drastic rebound in fixed-income, currency and commodities (“FICC”) trading revenues, higher net interest income and a marginal increase in equity trading revenues were primarily responsible for significant improvement in earnings. Further, the company’s capital ratios remained strong. However, weakness in underwriting income and advisory fees were on the downside. Further, a rise in compensation costs led to increase in operating expenses.
Net income applicable to Morgan Stanley was $1.60 billion, up 57% year over year.
Rebound in Trading Supports Revenue, Costs Up
Net revenue amounted to $8.9 billion, an increase of 15% from the prior-year quarter. Also, it surpassed the Zacks Consensus Estimate of $8.2 billion.
Net interest income was $1 billion, up 32% from the year-ago quarter. This was largely driven by a 20% rise in interest income. Meanwhile, total non-interest revenue of $7.9 billion grew 13% year over year, primarily supported by improvement in trading and investments.
Total non-interest expenses were $6.5 billion, up 4% year over year. The rise is due to a 19% improvement in compensation and benefits.
Quarterly Segmental Performance
Institutional Securities (IS): Pre-tax income from continuing operations was $1.38 billion, up 101% year over year. Net revenue was $4.6 billion, a rise of 17% from the year-ago quarter. The improvement was primarily attributable to a 61% rise in FICC income, partly offset by lower advisory revenues and underwriting fees.
Wealth Management (WM): Pre-tax income from continuing operations totaled $901 million, an increase of 9% on a year-over-year basis. Net revenue was $3.9 billion, up 7% year over year, driven by higher transactional revenues and net interest income. These were, nevertheless, partially offset by a fall in asset management fee revenues.
Investment Management (IM): Pre-tax income from continuing operations was $97 million, compared with pre-tax loss of $38 million from the year-ago quarter. Net revenue was $552 million, a surge of 101% year over year. The rise reflected the reversal of previously accrued carried interest associated with the Asia private equity business.
As of Sep 30, 2016, total assets under management or supervision were $417 billion, up 3% on a year-over-year basis.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been five revisions higher for the current quarter compared to zero lower in the past thirty days. As you can see in the chart below, we are seeing a meaningful lift in the consensus as a result of these estimate revisions, though the stock price is arguably surging thanks to this and a better rate environment.
At this time, Morgan Stanley's stock has a poor Growth score of 'F', however, its momentum is doing a lot better with a 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy. So from a fundamental perspective at least, there isn't a whole lot to like about MS shares. In fact, the company has an overall score of 'D' for its VGM score.
Outlook
Not only have estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise shares of MS have a Zacks Rank # 2 (buy) and we are expecting more outperformance from MS over the next few months too.
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Morgan Stanley (MS) Stock Has Soared Since Earnings, Can the Trend Continue?
It has been about a month since the last earnings report for Morgan Stanley(MS - Free Report) . Shares have added about 19.01 % in the past month, easily cruising past broad market performances in that time frame.
Will the recent positive trend continue leading up to their next earnings release, or is the stock 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.
Recent Earnings
Morgan Stanley Tops Q3 Earnings, Bond Trading Surges
Significant improvement in trading revenues drove Morgan Stanley’s third-quarter 2016 earnings from continuing operations of $0.80 per share, which easily surpassed the Zacks Consensus Estimate of $0.64. Further, this shows a 138% jump from the prior-year quarter, which excludes DVA.
A drastic rebound in fixed-income, currency and commodities (“FICC”) trading revenues, higher net interest income and a marginal increase in equity trading revenues were primarily responsible for significant improvement in earnings. Further, the company’s capital ratios remained strong. However, weakness in underwriting income and advisory fees were on the downside. Further, a rise in compensation costs led to increase in operating expenses.
Net income applicable to Morgan Stanley was $1.60 billion, up 57% year over year.
Rebound in Trading Supports Revenue, Costs Up
Net revenue amounted to $8.9 billion, an increase of 15% from the prior-year quarter. Also, it surpassed the Zacks Consensus Estimate of $8.2 billion.
Net interest income was $1 billion, up 32% from the year-ago quarter. This was largely driven by a 20% rise in interest income. Meanwhile, total non-interest revenue of $7.9 billion grew 13% year over year, primarily supported by improvement in trading and investments.
Total non-interest expenses were $6.5 billion, up 4% year over year. The rise is due to a 19% improvement in compensation and benefits.
Quarterly Segmental Performance
Institutional Securities (IS): Pre-tax income from continuing operations was $1.38 billion, up 101% year over year. Net revenue was $4.6 billion, a rise of 17% from the year-ago quarter. The improvement was primarily attributable to a 61% rise in FICC income, partly offset by lower advisory revenues and underwriting fees.
Wealth Management (WM): Pre-tax income from continuing operations totaled $901 million, an increase of 9% on a year-over-year basis. Net revenue was $3.9 billion, up 7% year over year, driven by higher transactional revenues and net interest income. These were, nevertheless, partially offset by a fall in asset management fee revenues.
Investment Management (IM): Pre-tax income from continuing operations was $97 million, compared with pre-tax loss of $38 million from the year-ago quarter. Net revenue was $552 million, a surge of 101% year over year. The rise reflected the reversal of previously accrued carried interest associated with the Asia private equity business.
As of Sep 30, 2016, total assets under management or supervision were $417 billion, up 3% on a year-over-year basis.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been five revisions higher for the current quarter compared to zero lower in the past thirty days. As you can see in the chart below, we are seeing a meaningful lift in the consensus as a result of these estimate revisions, though the stock price is arguably surging thanks to this and a better rate environment.
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 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy. So from a fundamental perspective at least, there isn't a whole lot to like about MS shares. In fact, the company has an overall score of 'D' for its VGM score.
Outlook
Not only have estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise shares of MS have a Zacks Rank # 2 (buy) and we are expecting more outperformance from MS over the next few months too.
MORGAN STANLEY 12 Month EPS
MORGAN STANLEY 12 Month EPS | MORGAN STANLEY Quote
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