North America

Earnings Preview: Morgan Stanley Q2 2017 (MS)

By: Craig Bowles

Overview

Morgan Stanley (MS) is scheduled to report 2Q 2017 earnings before the opening bell on Wednesday, July 19th. The results are expected at approximately 7:00 a.m. ET with a conference call webcast at Morgan Stanley Investor Relations to follow at 8:30 a.m.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS) or Earnings Per Share Ex-Items: If provided, these measures are most often the comparable figure to consensus estimates. Three of the past six quarters provided only Earnings Per Share (EPS). Analyst consensus estimate is $0.76 (range $0.68 to $0.85). (Source: Yahoo! Finance) Consensus was $0.84 three months ago.
  • Revenues: Analyst consensus expectations are for $9.10 bln (range $8.83 bln to $9.52 bln).
  • Morgan Stanley’s trailing P/E of 13.3 compares to an industry average of 17.5; Price/Book of 1.2 compares to a five-year average of 0.8; Price/Revenue of 2.3 compares to a five-year average of 1.7. Dividend yield of 1.8% compares to the 5-year average 1.2%.
  • Analysts view Morgan Stanley with 16 Buy, 6 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 150,221 shares over the last three months and a net 2,520,537 shares in the past year. (source: NASDAQ.com) In June 2017, Morgan Stanley increased share buybacks to $5 billion from last year’s $3.5 billion and hiked the dividend again.
  • Morgan Stanley shares have a 1-day average price change on earnings of 1.69%. Options are pricing in an implied move of 3.18% off earnings.

Recent News

  • 07/11: Ten banks have settled litigation accusing them of rigging an interest rate benchmark for derivatives with payments ranging from $56.5 million to $14 million per bank. Morgan Stanley still has to settle, according to a post on StreetInsider.com.
  • 06/28: Following positive results from the annual stress tests, the Fed approved capital return plans of all 34 banks. MS raised its quarterly dividend by 5c to 25c and increased buybacks, according to a post on CNBC.com.
  • 06/20: Macquarie has an Outperform rating on Morgan Stanley on the theme of improved M&A and should benefit from the Amazon purchase of Whole Foods, according to a post on Barron’s.com.
  • 06/19: Morgan Stanley this fall will roll out a robo-advisor for investors with as little as $5,000. The firm’s robo service will cost .45% of AUM annually, according to a post on Barron’s.com.
  • 06/19: Despite a flattening yield curve, big banks can benefit from higher payouts, relatively low valuations, and better earnings driven by higher rates. KBW warns the “bear flattener” of the yield curve pressures income, according to a post on Barron’s.com.
  • 06/17: Large lenders are poised to increase dividends by double digits, according to a post on Barron’s.com.
  • 06/13: Bank of America, JPMorgan Chase, Wells Fargo, Citi, and others launched Zelle, a money-transfer service that is built into your mobile banking app and allows you to send money to friends, even if they use a different bank, according to a post on Barron’s.com.
  • 06/06: Morgan Stanley sees financial regulatory reform progress picking up this summer, according to a post on Barron’s.com.

Technical Review

Morgan Stanley stock looks somewhat like Bank of America in that they are the two strongest banks over the past year and are only slightly below their Q1 highs ($47.12 for MS). Balance area support is in that $42-$43 area. (Chart courtesy of StockCharts.com)

Summary

Morgan Stanley having lowered commissions for stocks, ETFs, annuities and UITs could affect this quarter’s earnings. Morgan Stanley insiders had been buying the stock but reversed course and sold into the strength of the Trump rally and continue to sell. The last four quarters show earnings beat by an average of 15c. Estimize consensus for EPS Excluding Items of $0.80 on revenue of $9.447 bln compares to analyst consensus of $0.76 on revenue of $9.10 bln.

 

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