A month has gone by since the last earnings report for Morgan Stanley (MS). Shares have lost about 2.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Morgan Stanley Q1 Earnings Miss on Coronavirus Mayhem
Morgan Stanley’s first-quarter 2020 adjusted earnings of 99 cents per share missed the Zacks Consensus Estimate of $1.07. Also, the figure declined 26% from the year-ago quarter. The results were largely impacted by coronavirus-related concerns and economic slowdown.
As expected, Morgan Stanley recorded a 11% year-over-year decline in advisory fees. Equity underwriting fees inched down 1%, while fixed income underwriting revenues grew 10% from the prior-year quarter. Therefore, investment banking fees fell 1% from the year-ago quarter.
As projected, its trading revenues registered growth. Specifically, fixed income trading revenues increased 29% and equity trading income improved 20% from the prior-year period. Overall trading revenues increased 30% from the year-ago period.
Higher net interest income, driven by a rise in loan balance (up 15%) and lower interest expenses, supported the top line to some extent.
Net income applicable to common shareholders during the quarter was $1.60 billion, decreasing 32% from a year ago.
Lower Advisory Fees Hurt Revenues, Costs Stable
Net revenues were $9.49 billion, down 8% from the prior-year quarter. However, the top line beat the Zacks Consensus Estimate of $9.08 billion.
Net interest income was $1.36 billion, jumping 34% from the year-ago quarter. This was largely due to 34% fall in interest expenses.
Total non-interest revenues of $8.13 billion declined 12% year over year.
Total non-interest expenses were $7.34 billion, on par with the prior-year reported number.
Dismal Segmental Performance
Institutional Securities: Pre-tax income from continuing operations was $950 million, decreasing 40% year over year. Net revenues were $4.91 billion, down 6% from the prior-year figure. The fall was mainly due to lower investment banking revenues and loss in investment revenues, partially offset by higher trading income.
Wealth Management: Pre-tax income from continuing operations totaled $1.06 billion, down 11% from the year-ago figure. Net revenues were $4.04 billion, declining 8% year over year, as fall in transactional revenues and net interest income were partially offset by higher asset management revenues.
Investment Management: Pre-tax income from continuing operations was $143 million, falling 18% from the year-ago quarter. Net revenues were $692 million, down 14% from the prior-year level. The decrease was mainly owing to lower investment revenues, partially offset by a rise in asset management fees.
As of Mar 31, 2020, total assets under management or supervision were $584 billion, up 22% on a year-over-year basis.
Strong Capital Position
As of Mar 31, 2020, book value per share was $49.09, up from $42.83 in the corresponding period of 2019. Tangible book value per share was $43.28, up from $37.62 in the comparable year-ago period.
Morgan Stanley’s Tier 1 capital ratio was 17.4% compared with 19.0% in the year-ago quarter. Tier 1 common equity ratio was 15.3%, down from 16.7% in the prior year.
Share Repurchase Update
During the first quarter, Morgan Stanley repurchased shares worth $1.3 billion. This was part of the company's 2019 capital plan. Notably, in mid-March, the company suspended the buyback plan amid coronavirus pandemic.
Management provided a two-year outlook in January. However, given the uncertainty surrounding the coronavirus pandemic, the company has pointed out that these will likely take much longer to achieve. On first-quarter 2020 earnings conference call, the company’s CEO said, “We will have much greater visibility to discuss these objectives towards the end of this year.”
The company expects effective tax rate to increase from the first-quarter 2020 level in the subsequent quarters and full-year 2020 tax rate to be approximately 22-23%.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months.
Currently, Morgan Stanley has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Morgan Stanley has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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