North America

Earnings Preview: Morgan Stanley Q3 2017 (MS)

By: Craig Bowles

Overview

Morgan Stanley (MS) is scheduled to report 3Q 2017 earnings before the opening bell on Tuesday, October 17th. 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. Morgan Stanley will be followed by Goldman Sachs later the same morning which will complete the big banks’ reporting of quarterly earnings.

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. The past two quarters provided only Earnings Per Share (EPS): Analyst consensus estimate is $0.81 (range $0.76 to $0.86). (Source: Yahoo! Finance) Consensus was $0.83 two months ago.
  • Revenues: Analyst consensus expectations are for $9.01 bln (range $8.74 bln to $9.28 bln).
  • Morgan Stanley’s trailing P/E of 14.1 compares to an industry average of 17.5; Price/Book of 1.3 compares to a five-year average of 0.8; Price/Revenue of 2.5 compares to a five-year average of 1.7. Dividend yield of 1.7% compares to the 5-year average 1.2%.
  • Analysts view Morgan Stanley with 17 (16 last qtr) Buy, 5 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 242,362 shares over the last three months and sold a net 2,332,160 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 2.19%. Options are pricing in an implied move of 2.77% off earnings.

Recent News

  • 10/09: Credit Suisse recommends Morgan Stanley among the big banks expected to do well but suggests that banks’ performance will be tied to the macro backdrop, according to a post on Barron’s.com.
  • 10/02: Morgan Stanley is set to acquire Los Angeles, CA-based Mesa West Capital, LLC, a commercial real estate credit platform, which will give Morgan Stanley’s Investment Management unit $5 billion in assets and the ability to offer real estate credit, according to a post on Zack’s.com.
  • 09/28: The Financial Industry Regulatory Authority ordered Morgan Stanley to pay $3.25 million in fines and $9.78 million in restitution to its clients for inadequately supervising short-term trades of certain unit investment trusts (UIT) for the period between January 2012 and June 2015, according to a post on Zack’s.com.
  • 09/20: The Fed will start winding down its controversial “quantitative easing” strategy under which it bought trillions of dollars in bonds, according to a post on MarketWatch.com.
  • 09/08: Oppenheimer thinks bank stocks are back to trading as bond proxies, according to a post on Barron’s.com.
  • 08/18: Credit Suisse believes credit quality could be a bright spot for the banks. The typically slow season of July and August in capital markets means a pickup will have to happen in September, according to a post on Barron’s.com.
  • 08/08: Morgan Stanley beat Goldman Sachs Group Inc. to become the most profitable foreign securities firm in Japan last fiscal year after it boosted structured-product sales and managed the two biggest initial public offerings, according to a post on Bloomberg.com.
  • 07/22: KBW estimated that the big banks, including Morgan Stanley, could get a cumulative earnings boost averaging 30% if a series of regulatory-relief actions take place—among them, the capital rule on risk-free deposits, a relaxation of the Volcker rule, and a reduction in the excess capital that large U.S. banks hold relative to overseas rivals, according to a post on Barron’s.com.

Technical Review

Morgan Stanley stock looks somewhat like Bank of America in that they are among strongest banks over the past one year. Both have moved slightly above their Q1 highs. A move back below $47 would be a worry in that the stock would return to the balance area of nearly one year. (Chart courtesy of StockCharts.com)

Summary

Morgan Stanley having lowered commissions for stocks, ETFs, annuities and UITs last quarter could affect this quarter’s earnings. Analysts are bullish and suggest that the yield curve steepening would be a positive for the banks but that normally occurs with a slowing economy and decreased loan demand. Morgan Stanley insider selling has been relatively less the past six months. The last four quarters show earnings beat by an average of 14c. Estimize consensus for EPS Excluding Items of $0.83 on revenue of $9.02 bln compares to analyst consensus of $0.81 on revenue of $9.01 bln.

 

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