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Morgan Stanley (MS) Up 0.2% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have added about 0.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Morgan Stanley 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 Q4 Earnings Beat on Trading, Wealth Business
Morgan Stanley’s fourth-quarter 2020 adjusted earnings of $1.92 per share easily outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line improved 48% from the year-ago quarter. This was mainly driven by solid trading and investment banking (IB) performance, and E*Trade Financial deal (closed in October 2020) that provided support to the Wealth Management segment.
As anticipated, Morgan Stanley’s trading business delivered a solid performance. Fixed income trading revenues grew 31% year over year and equity trading income rose 30%. Thus, overall trading revenues increased 32%.
Further, IB business was impressive despite weaknesses in fixed income underwriting (corresponding fees down 5%). Equity underwriting fees soared 137% from the prior-year quarter, while advisory fees were up 26%. Therefore, IB fees jumped 46%.
Additionally, higher net interest income, mainly driven by a rise in loan balance (up 22%) and plunge in interest expenses supported the top line.
However, mounting operating expenses hurt the results to some extent.
Results excluded integration-related expenses related to E*Trade Financial deal. Including this, net income applicable to common shareholders was $3.3 billion, which grew 57% from a year ago.
Trading, IB Aid Revenues Increase, Costs Rise
Net revenues were $13.6 billion, increasing 26% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $10.3 billion.
Net interest income was $1.9 billion, which grew 31% from the year-ago quarter. This was largely due to an 85% plunge in interest expenses.
Total non-interest revenues of $11.8 billion surged 25% year over year.
Total non-interest expenses were $9.2 billion, up 13% from the prior-year number.
The company recorded provision for credit losses on loans and lending commitments of $5 million, down significantly from $57 million in the prior-year quarter. Allowance for credit losses on loans and lending commitments was $1.2 billion as of Dec 31, 2020, down 2% sequentially.
Decent Quarterly Segment Performance
Institutional Securities: Pre-tax income from continuing operations was $3.2 billion, surging significantly from $1.2 billion in the prior-year quarter. Net revenues were $7 billion, growing 39%. The rise was mainly driven by higher equity underwriting, advisory and trading revenues, partially offset by decline in fixed income underwriting revenues.
Wealth Management: The segment includes results of E*Trade Financial. Pre-tax income from continuing operations totaled $1.1 billion, down 8% from the year-ago figure. Net revenues were $5.7 billion, increasing 24% driven by higher transactional, net interest income and asset management revenues.
Investment Management: Pre-tax income from continuing operations was $196 million, falling 56% from the year-ago quarter. Net revenues were $1.1 billion, down 19%. The decline was mainly due to lower investment revenues, partly offset by a rise in asset management fees.
As of Dec 31, 2020, total assets under management or supervision were $781 billion, up 41% on a year-over-year basis.
Strong Capital Position
As of Dec 31, 2020, book value per share was $51.13, up from $45.82 in the corresponding period of 2019. Tangible book value per share was $41.95, up from $40.01 on Dec 31, 2019. Morgan Stanley’s Tier 1 capital ratio was 19.8% compared with 19.2% in the year-ago quarter. Tier 1 common equity ratio was 17.7%, up from 16.9%.
Two-year Objective (Includes Eaton Vance Deal)
Management expects to WM segment’s pre-tax margin to be in the range of 26-30%. Further, the company’s adjusted efficiency ratio is projected to be 69-72% and return on tangible common equity (ROTCE) 14-16%.
Long-term Outlook
WM segment’s pre-tax margin to be more than 30%. Further, the company’s adjusted efficiency ratio is projected to be less than 70% and ROTCE in excess of 17%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 12.89% due to these changes.
VGM Scores
At this time, Morgan Stanley has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Morgan Stanley has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Morgan Stanley (MS) Up 0.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have added about 0.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Morgan Stanley 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 Q4 Earnings Beat on Trading, Wealth Business
Morgan Stanley’s fourth-quarter 2020 adjusted earnings of $1.92 per share easily outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line improved 48% from the year-ago quarter. This was mainly driven by solid trading and investment banking (IB) performance, and E*Trade Financial deal (closed in October 2020) that provided support to the Wealth Management segment.
As anticipated, Morgan Stanley’s trading business delivered a solid performance. Fixed income trading revenues grew 31% year over year and equity trading income rose 30%. Thus, overall trading revenues increased 32%.
Further, IB business was impressive despite weaknesses in fixed income underwriting (corresponding fees down 5%). Equity underwriting fees soared 137% from the prior-year quarter, while advisory fees were up 26%. Therefore, IB fees jumped 46%.
Additionally, higher net interest income, mainly driven by a rise in loan balance (up 22%) and plunge in interest expenses supported the top line.
However, mounting operating expenses hurt the results to some extent.
Results excluded integration-related expenses related to E*Trade Financial deal. Including this, net income applicable to common shareholders was $3.3 billion, which grew 57% from a year ago.
Trading, IB Aid Revenues Increase, Costs Rise
Net revenues were $13.6 billion, increasing 26% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $10.3 billion.
Net interest income was $1.9 billion, which grew 31% from the year-ago quarter. This was largely due to an 85% plunge in interest expenses.
Total non-interest revenues of $11.8 billion surged 25% year over year.
Total non-interest expenses were $9.2 billion, up 13% from the prior-year number.
The company recorded provision for credit losses on loans and lending commitments of $5 million, down significantly from $57 million in the prior-year quarter. Allowance for credit losses on loans and lending commitments was $1.2 billion as of Dec 31, 2020, down 2% sequentially.
Decent Quarterly Segment Performance
Institutional Securities: Pre-tax income from continuing operations was $3.2 billion, surging significantly from $1.2 billion in the prior-year quarter. Net revenues were $7 billion, growing 39%. The rise was mainly driven by higher equity underwriting, advisory and trading revenues, partially offset by decline in fixed income underwriting revenues.
Wealth Management: The segment includes results of E*Trade Financial. Pre-tax income from continuing operations totaled $1.1 billion, down 8% from the year-ago figure. Net revenues were $5.7 billion, increasing 24% driven by higher transactional, net interest income and asset management revenues.
Investment Management: Pre-tax income from continuing operations was $196 million, falling 56% from the year-ago quarter. Net revenues were $1.1 billion, down 19%. The decline was mainly due to lower investment revenues, partly offset by a rise in asset management fees.
As of Dec 31, 2020, total assets under management or supervision were $781 billion, up 41% on a year-over-year basis.
Strong Capital Position
As of Dec 31, 2020, book value per share was $51.13, up from $45.82 in the corresponding period of 2019. Tangible book value per share was $41.95, up from $40.01 on Dec 31, 2019. Morgan Stanley’s Tier 1 capital ratio was 19.8% compared with 19.2% in the year-ago quarter. Tier 1 common equity ratio was 17.7%, up from 16.9%.
Two-year Objective (Includes Eaton Vance Deal)
Management expects to WM segment’s pre-tax margin to be in the range of 26-30%. Further, the company’s adjusted efficiency ratio is projected to be 69-72% and return on tangible common equity (ROTCE) 14-16%.
Long-term Outlook
WM segment’s pre-tax margin to be more than 30%. Further, the company’s adjusted efficiency ratio is projected to be less than 70% and ROTCE in excess of 17%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 12.89% due to these changes.
VGM Scores
At this time, Morgan Stanley has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Morgan Stanley has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.