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Why Is Morgan Stanley (MS) Down 7.7% Since Last Earnings Report?
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A month has gone by since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Morgan Stanley due for a breakout? 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 drivers.
Morgan Stanley Q2 Earnings Beat Estimates, Revenues Rise
Morgan Stanley’s second-quarter 2023 earnings of $1.24 per share surpassed the Zacks Consensus Estimate of $1.14. However, the bottom line reflects a decline of 11% from the year-ago quarter.
As expected, the performance of the IB business was weak. While equity and fixed income underwriting fees increased 52% and 21%, respectively, from the prior-year quarter, advisory fees declined 24%. Therefore, total IB fees increased only marginally from the prior-year quarter.
Further, because of subdued volatility and client activity, Morgan Stanley’s trading business performance was muted. Fixed-income trading revenues decreased 31% and equity trading income declined 14% year over year.
Higher expenses and provisions were the other headwinds in the quarter.
Despite a significant increase in interest income (driven by higher rates), the company’s net interest income (NII) declined year over year because of substantially higher interest expenses.
Net income applicable to common shareholders was $2.05 billion, down 14% from the year-ago quarter. Our estimate for the metric was $2.48 billion.
Revenues Improve, Expenses Rise
Net revenues were $13.46 billion, up 2% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $12.76 billion.
NII was $2.01 billion, down 12% year over year. We had projected NII of $2.32 billion.
Total non-interest revenues of $11.45 billion increased 6%. Our estimate for the metric was $10.91 billion.
Total non-interest expenses were $10.48 billion, up 8% year over year. Our estimate for expenses was $9.70 billion.
Provision for credit losses was $161 million, up 59% from $101 million recorded in the prior-year quarter. Our estimate for the metric was $123.4 million.
Quarterly Segment Performance
Institutional Securities: Pre-tax income was $977 million, down 37% from the prior-year quarter. Our estimate for the same was $1.34 billion. Net revenues were $5.65 billion, down 8%. The downside resulted from a fall in advisory revenues, and fixed-income and equity trading revenues. We had projected total revenues to be $5.68 billion.
Wealth Management: Pre-tax income totaled $1.68 billion, up 11% year over year. Our estimate for the same was $1.86 billion. Net revenues were $6.66 billion, up 16%, driven by higher net interest income and transactional revenues. We had projected total revenues of $6.35 billion.
Total client assets were $4.89 trillion as of Jun 30, 2023, up 15% year over year.
Investment Management: Pre-tax income was $170 million, falling 32% from the year-ago quarter. Our estimate for the same was $202.6 million. Net revenues were $1.28 billion, down 9%. The fall was due to a decline in asset management and related fees, along with a fall in performance-based income and other income. We had projected total revenues of $1.33 billion.
As of Jun 30, 2023, total assets under management or supervision were $1.41 trillion, up 5% from Jun 30, 2022.
Capital Position Improves
As of Jun 30, 2023, the book value per share was $55.24, up from $54.46 in the corresponding period of 2022. The tangible book value per share was $40.79, up from $40.07 as of Jun 30, 2022.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.8% compared with 17.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.9%, up from 15.5% a year ago.
Share Repurchase Update
In the reported quarter, Morgan Stanley repurchased 12 million shares for $1 billion.
2023 Outlook
Management anticipates incurring nearly $325 million of additional integration-related costs. These are likely to be evenly spread across quarters, with almost 2/3rd related to E*Trade and 1/3rd related to Eaton Vance. At the end of the first half of 2023, approximately $150 million of the above-mentioned charges remained.
Management expects no further expansion in quarterly NII going forward.
The tax rate is expected to be almost 23%.
Long-Term Objectives
The company expects an ROTCE of 20% or more. The efficiency ratio is expected to be less than 70%.
For the WM segment, the pre-tax margin is projected at more than 30%. Across the WM and IM segments, total client assets are expected to be $10 trillion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Morgan Stanley has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. 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 aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Morgan Stanley 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 7.7% Since Last Earnings Report?
A month has gone by since the last earnings report for Morgan Stanley (MS - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Morgan Stanley due for a breakout? 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 drivers.
Morgan Stanley Q2 Earnings Beat Estimates, Revenues Rise
Morgan Stanley’s second-quarter 2023 earnings of $1.24 per share surpassed the Zacks Consensus Estimate of $1.14. However, the bottom line reflects a decline of 11% from the year-ago quarter.
As expected, the performance of the IB business was weak. While equity and fixed income underwriting fees increased 52% and 21%, respectively, from the prior-year quarter, advisory fees declined 24%. Therefore, total IB fees increased only marginally from the prior-year quarter.
Further, because of subdued volatility and client activity, Morgan Stanley’s trading business performance was muted. Fixed-income trading revenues decreased 31% and equity trading income declined 14% year over year.
Higher expenses and provisions were the other headwinds in the quarter.
Despite a significant increase in interest income (driven by higher rates), the company’s net interest income (NII) declined year over year because of substantially higher interest expenses.
Net income applicable to common shareholders was $2.05 billion, down 14% from the year-ago quarter. Our estimate for the metric was $2.48 billion.
Revenues Improve, Expenses Rise
Net revenues were $13.46 billion, up 2% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $12.76 billion.
NII was $2.01 billion, down 12% year over year. We had projected NII of $2.32 billion.
Total non-interest revenues of $11.45 billion increased 6%. Our estimate for the metric was $10.91 billion.
Total non-interest expenses were $10.48 billion, up 8% year over year. Our estimate for expenses was $9.70 billion.
Provision for credit losses was $161 million, up 59% from $101 million recorded in the prior-year quarter. Our estimate for the metric was $123.4 million.
Quarterly Segment Performance
Institutional Securities: Pre-tax income was $977 million, down 37% from the prior-year quarter. Our estimate for the same was $1.34 billion. Net revenues were $5.65 billion, down 8%. The downside resulted from a fall in advisory revenues, and fixed-income and equity trading revenues. We had projected total revenues to be $5.68 billion.
Wealth Management: Pre-tax income totaled $1.68 billion, up 11% year over year. Our estimate for the same was $1.86 billion. Net revenues were $6.66 billion, up 16%, driven by higher net interest income and transactional revenues. We had projected total revenues of $6.35 billion.
Total client assets were $4.89 trillion as of Jun 30, 2023, up 15% year over year.
Investment Management: Pre-tax income was $170 million, falling 32% from the year-ago quarter. Our estimate for the same was $202.6 million. Net revenues were $1.28 billion, down 9%. The fall was due to a decline in asset management and related fees, along with a fall in performance-based income and other income. We had projected total revenues of $1.33 billion.
As of Jun 30, 2023, total assets under management or supervision were $1.41 trillion, up 5% from Jun 30, 2022.
Capital Position Improves
As of Jun 30, 2023, the book value per share was $55.24, up from $54.46 in the corresponding period of 2022. The tangible book value per share was $40.79, up from $40.07 as of Jun 30, 2022.
Morgan Stanley’s Tier 1 capital ratio (advanced approach) was 17.8% compared with 17.1% in the year-ago quarter. Common equity Tier 1 capital ratio was 15.9%, up from 15.5% a year ago.
Share Repurchase Update
In the reported quarter, Morgan Stanley repurchased 12 million shares for $1 billion.
2023 Outlook
Management anticipates incurring nearly $325 million of additional integration-related costs. These are likely to be evenly spread across quarters, with almost 2/3rd related to E*Trade and 1/3rd related to Eaton Vance. At the end of the first half of 2023, approximately $150 million of the above-mentioned charges remained.
Management expects no further expansion in quarterly NII going forward.
The tax rate is expected to be almost 23%.
Long-Term Objectives
The company expects an ROTCE of 20% or more. The efficiency ratio is expected to be less than 70%.
For the WM segment, the pre-tax margin is projected at more than 30%. Across the WM and IM segments, total client assets are expected to be $10 trillion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Morgan Stanley has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. 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 aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Morgan Stanley has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.