North America

Earnings Preview: Morgan Stanley Q4 2016 (MS)

By: Craig Bowles

Overview

Morgan Stanley (MS) is scheduled to report 4Q 2016 earnings before the opening bell on Tuesday, January 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.

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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. Two of the past four quarters provided only Earnings Per Share (EPS). Analyst consensus estimate is $0.65 (range $0.48 to $0.77). (Source: Yahoo! Finance) Consensus was $0.58 three months ago.
  • Revenues: Analyst consensus expectations are for 7.9% y/y to $8.48 bln.
  • Morgan Stanley’s trailing P/E of 17.2 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 2.5 compares to a five-year average of 1.7, Price/Cash Flow of 4.2 compares to a five-year average of 8.3. Dividend yield of 1.6% compares to the 5-year average 1.2%.
  • Analysts view Morgan Stanley with 13 Buy, 13 Hold, and 1 (2 last qtr) Sell ratings. (source:  MarketBeat.com)
  • Insiders sold 1,795,044 shares over the last three months and a net 1,466,769 shares in the past year. (source: NASDAQ.com) In June 2016, Morgan Stanley announced plans to spend $3.5 billion on share buybacks and hiked the dividend by 33%.
  • Morgan Stanley shares have a 1-day average price change on earnings of 1.22%. Options are pricing in an implied move of 3.12% off earnings.

Recent News

  • 01/06: Macquarie sees more upside for Morgan Stanley but the fourth quarter could be sluggish for the brokers due to low ECM volumes and thinner margins in equities, as the recent rally was driven more by ETFs than stock specific trades. Otherwise, ongoing restructuring continues reducing capital and costs out of FICC and growing wealth management. Consensus estimates appear below management’s 2017 guidance of between a 9% and 11% ROE. A strong balance sheet with a CET1 ratio of approximately 16% coupled with improved outlook for retail commissions could provide upside benefit, according to a post on Barron’s.com.
  • 12/21: Moody’s believes the Fed’s new TLAC rule won’t affect Morgan Stanley as they already meet the capital requirements to buffer against any potential future losses in a crisis, according to a post on Barron’s.com.
  • 12/09: Guggenheim Securities sees benefits for Morgan Stanley from the yield curve having steepened sharply following the presidential election. Bank net interest margins (NIMs) should benefit modestly in the fourth quarter with more significant improvement in 2017. Mergers and acquisitions (M&A) volume is up quarter-over-quarter and is on track to be up year-over-year, according to a post on Barron’s.com.
  • 12/06: Morgan Stanley plans to increase some compensation-grid thresholds by 10% in the midst of a bank-wide effort to trim $1 billion in annual costs, according to a post on Barron’s.com.

Technical Review

Morgan Stanley had retraced two-thirds of the 2012-2015 advance by early 2016 and is now above the 2015 highs. Relative performance shows the stock having been the strongest of the major banks since mid-2016. Point and figure technicians met their initial bearish price objective of $21 and now have a tentative bullish price objective of $86. (Chart courtesy of StockCharts.com)

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Summary

Morgan Stanley insiders had been buying the stock over the past year but abruptly reversed course last quarter and sold more heavily into this recent rally. The last four quarters show earnings beat by an average of 13c. Estimize consensus for EPS Excluding Items of $0.68 on revenue of $8.545 bln compares to analyst consensus of $0.65 on revenue of $8.48 bln.

 

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