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Why Is Morgan Stanley (MS) Down 3.1% Since Its Last Earnings Report?
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It has been about a month since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have lost about 3.1% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is MS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Morgan Stanley Tops Q2 Earnings on Higher Trading Fees
Higher-than-expected trading income and decent investment banking performance drove Morgan Stanley’s second-quarter 2018 earnings of $1.30 per share, which easily surpassed the Zacks Consensus Estimate of $1.08. The figure reflected 49% surge from the prior-year quarter.
Excluding net discrete tax benefits of $88 million in the reported quarter, adjusted earnings were $1.25 per share.
Surprisingly, both equity trading income (up 15%) and fixed income, currency and commodities income (up 12%) witnessed improvement during the quarter. Also, increase in equity underwriting fees (up 34%), advisory income (up 23%) and net interest income acted as tailwinds. Further, debt underwriting revenues rose 7%.
Also, the company’s capital ratios remained strong. However, operating expenses recorded a rise.
Net income applicable to Morgan Stanley was $2.4 billion, up 39% year over year.
Trading, Investment Banking Aid Revenues, Costs Rise
Net revenues amounted to $10.6 billion, a rise of 12% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $10 billion.
Net interest income was $906 million, jumping 21% from the year-ago quarter. This was largely driven by a rise in interest income, partially offset by higher interest expenses.
Total non-interest revenues of $9.7 billion grew 11% year over year, primarily supported by improvement in trading and investment banking.
Total non-interest expenses were $7.5 billion, up 9% year over year.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.8 billion, increasing 26% year over year. Net revenues of $5.7 billion grew 20% from the prior-year quarter. The rise was mainly driven by higher trading income, advisory revenues and equity underwriting revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.2 billion, up 9% on a year-over-year basis. Net revenues were $4.3 billion, increasing 4% from the prior-year quarter, driven by higher asset management fee revenues and net interest income, partly offset by a decline in transactional revenues.
Investment Management: Pre-tax income from continuing operations was $140 million, down 1% from the year-ago quarter. Net revenues were $691 million, a rise of 4% year over year. The increase reflected higher asset management fees, partly offset by a fall in investment revenues.
As of Jun 30, 2018, total assets under management or supervision were $474 billion, up 9% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2018, book value per share was $40.34, up from $38.22 as of Jun 30, 2017. Tangible book value per share was $35.19, up from $33.24 a year ago.
Morgan Stanley’s Tier 1 capital ratio Advanced (Fully Phased-in) was 18.9% compared with 18.2% in the year-ago quarter. Tier 1 common equity ratio Advanced (Fully Phased-in) was 16.5% compared with 16.0% a year ago.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 24 million shares for nearly $1.25 billion. This was part of the company's 2017 capital plan.
Outlook
In 2018, management expects NII growth to slow down, based on anticipated funding mix and higher deposit betas than experienced in 2017. Notably, the company expects Wealth Management NII to grow in 4-5% range.
Management expects equity underwriting activity levels to remain healthy, although near-term issuances could be impacted by macroeconomic uncertainties, geopolitical events and a typical seasonal slowdown.
For the Wealth Management segment, the company projects the stability and trends of last several quarters to continue. For the Investment Management segment, it anticipates asset management fees to remain stable with potential unevenness in the investments line.
Management set an efficiency ratio target of less than 73% for 2018 and 2019.
For the Wealth Management segment, the company expects margins of 26-28% in 2018 and 2019. The target achievement will depend on execution of a number of revenue and expense initiatives including expense discipline, business growth, higher interest rates and loan growth.
The company expects effective tax rate of 22-25% for 2018. Since the vast majority of share-based award conversions are placed in the first quarter 2018, the company expects the tax rate for the remaining quarters to be at the upper end of this range.
Over the medium-term, management targets a return on equity of 10-13% and return on tangible common equity ratio of 11.5-14.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.
At this time, MS has a poor Growth Score of F. Its Momentum is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, MS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Morgan Stanley (MS) Down 3.1% Since Its Last Earnings Report?
It has been about a month since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have lost about 3.1% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is MS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Morgan Stanley Tops Q2 Earnings on Higher Trading Fees
Higher-than-expected trading income and decent investment banking performance drove Morgan Stanley’s second-quarter 2018 earnings of $1.30 per share, which easily surpassed the Zacks Consensus Estimate of $1.08. The figure reflected 49% surge from the prior-year quarter.
Excluding net discrete tax benefits of $88 million in the reported quarter, adjusted earnings were $1.25 per share.
Surprisingly, both equity trading income (up 15%) and fixed income, currency and commodities income (up 12%) witnessed improvement during the quarter. Also, increase in equity underwriting fees (up 34%), advisory income (up 23%) and net interest income acted as tailwinds. Further, debt underwriting revenues rose 7%.
Also, the company’s capital ratios remained strong. However, operating expenses recorded a rise.
Net income applicable to Morgan Stanley was $2.4 billion, up 39% year over year.
Trading, Investment Banking Aid Revenues, Costs Rise
Net revenues amounted to $10.6 billion, a rise of 12% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $10 billion.
Net interest income was $906 million, jumping 21% from the year-ago quarter. This was largely driven by a rise in interest income, partially offset by higher interest expenses.
Total non-interest revenues of $9.7 billion grew 11% year over year, primarily supported by improvement in trading and investment banking.
Total non-interest expenses were $7.5 billion, up 9% year over year.
Quarterly Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $1.8 billion, increasing 26% year over year. Net revenues of $5.7 billion grew 20% from the prior-year quarter. The rise was mainly driven by higher trading income, advisory revenues and equity underwriting revenues.
Wealth Management: Pre-tax income from continuing operations totaled $1.2 billion, up 9% on a year-over-year basis. Net revenues were $4.3 billion, increasing 4% from the prior-year quarter, driven by higher asset management fee revenues and net interest income, partly offset by a decline in transactional revenues.
Investment Management: Pre-tax income from continuing operations was $140 million, down 1% from the year-ago quarter. Net revenues were $691 million, a rise of 4% year over year. The increase reflected higher asset management fees, partly offset by a fall in investment revenues.
As of Jun 30, 2018, total assets under management or supervision were $474 billion, up 9% on a year-over-year basis.
Strong Capital Position
As of Jun 30, 2018, book value per share was $40.34, up from $38.22 as of Jun 30, 2017. Tangible book value per share was $35.19, up from $33.24 a year ago.
Morgan Stanley’s Tier 1 capital ratio Advanced (Fully Phased-in) was 18.9% compared with 18.2% in the year-ago quarter. Tier 1 common equity ratio Advanced (Fully Phased-in) was 16.5% compared with 16.0% a year ago.
Share Repurchases
During the reported quarter, Morgan Stanley bought back around 24 million shares for nearly $1.25 billion. This was part of the company's 2017 capital plan.
Outlook
In 2018, management expects NII growth to slow down, based on anticipated funding mix and higher deposit betas than experienced in 2017. Notably, the company expects Wealth Management NII to grow in 4-5% range.
Management expects equity underwriting activity levels to remain healthy, although near-term issuances could be impacted by macroeconomic uncertainties, geopolitical events and a typical seasonal slowdown.
For the Wealth Management segment, the company projects the stability and trends of last several quarters to continue. For the Investment Management segment, it anticipates asset management fees to remain stable with potential unevenness in the investments line.
Management set an efficiency ratio target of less than 73% for 2018 and 2019.
For the Wealth Management segment, the company expects margins of 26-28% in 2018 and 2019. The target achievement will depend on execution of a number of revenue and expense initiatives including expense discipline, business growth, higher interest rates and loan growth.
The company expects effective tax rate of 22-25% for 2018. Since the vast majority of share-based award conversions are placed in the first quarter 2018, the company expects the tax rate for the remaining quarters to be at the upper end of this range.
Over the medium-term, management targets a return on equity of 10-13% and return on tangible common equity ratio of 11.5-14.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.
Morgan Stanley Price and Consensus
Morgan Stanley Price and Consensus | Morgan Stanley Quote
VGM Scores
At this time, MS has a poor Growth Score of F. Its Momentum is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, MS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.