Morgan Stanley Earnings Preview: Will Morgan Stanley Report An Earnings Beat For FY 2019?

by Trefis Team
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Morgan Stanley (NYSE: MS) will release its Q4 and full-year 2019 results on Thursday, January 16. Trefis details expectations from the global financial services firm in an interactive dashboard, parts of which we highlight below. We believe that Morgan Stanley will likely report an earnings beat for FY19 despite revenues stopping just shy of the expected figure. The bank’s revenues would have marginally decreased year-on-year to $40.1 billion (slightly below the consensus estimate of $40.2 billion), primarily due to negative growth in investment banking and equity trading revenues. Also, the EPS figure should have improved to $4.95 due to the reduction in share count compared to the previous year, which is marginally above the consensus estimate of $4.91. Further, we believe that stronger-than-expected earnings for FY 2019 are likely to overshadow the revenue decline and will likely result in a slight positive movement in Morgan Stanley’s stock price once it announces earnings. Our forecast indicates that Morgan Stanley’s valuation is $55 a share, which is roughly 5% above the current market price.

Trefis shines the spotlight on key assumptions and data for Morgan Stanley, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Morgan Stanley’s FY19 earnings in our interactive dashboard.

 

(1) Morgan Stanley’s revenues would have decreased to $40.1 billion in 2019; slightly below consensus estimates

  • Trefis estimates Morgan Stanley’s 2019 revenues to be $40.1 billion, slightly below the consensus estimate of $40.2 billion.
  • Total revenues have increased at an average annual rate of 8% over the last three years, from $34.6 billion in 2016 to $40.1 billion in 2018. However, we expect it to have decreased slightly in 2019.
  • The decline would mainly be driven by a drop in the institutional securities segment, although growth in investment management and wealth management businesses nearly offsetting its impact on the top line.
  • Morgan Stanley’s Institutional Securities segment consists of 5 businesses: equity trading, FICC (Fixed income, currency, and commodity) trading, equity underwriting & debt origination, M&A advisory, and principal investments & other.
  • We expect the segment to contribute $19.6 billion to Morgan Stanley’s 2019 revenues – down by 2% y-o-y – due to a 4% decline in equity underwriting & debt origination revenues coupled with a 6% drop in equities trading.
  • Wealth Management revenues have grown 12% – from $15.3 billion in 2016 to $17.2 billion in 2018. However, we expect the growth to slow down due to adverse market conditions and lower consumer activity levels in 2019, restricting revenues to $17.3 billion.
  • Investment Management grew 29% over the last two years, driven by positive growth in fees as % of Assets under Management despite intense competition among the asset management players. We expect the trend to continue – helping segment revenues reach $3.1 billion for 2019.
  • Notably, Morgan Stanley would likely add around $400 million in incremental revenues over 2020 to report $40.5 billion in total revenues for the year.

Our interactive dashboard analysis, ‘How Does Morgan Stanley Make Money?‘, provides an in-depth view of the company’s revenues along with our forecasts and a comparison of trends with peers Bank of America, JPMorgan, and Goldman Sachs.

 

 (2) EPS is likely to increase 4.6% from $4.73 in 2018 to $4.95 in 2019, which is marginally above consensus estimates

  • We expect Morgan Stanley’s 2019 earnings per share (EPS) to be $4.95 per Trefis analysis, slightly higher than the consensus estimate of $4.91 per share.
  • A decrease in Shares Outstanding will drive EPS growth despite an expected increase in Total Expenses by 0.7%.
  • As we forecast Morgan Stanley’s Revenues to grow at a slower rate than Expenses in 2019 (0.0% vs. 0.7%), this will result in a 53 bps decrease in Morgan Stanley’s Net Income Margin figure from 20.5% in 2018 to 20.0% in 2019.
  • For 2020, we believe that an increase in revenues coupled with slightly higher growth in expenses will result in the net income margin figure shrinking to 19.7%

Our interactive dashboard analysis, How Does Morgan Stanley Spend Its Money, provides an in-depth view of the company’s expenses.

(3) Stock price estimate ~5% higher than the market price

  • A trailing P/E multiple of 11.0x looks appropriate for Morgan Stanley’s stock, which is slightly higher than the current implied P/E multiple of 10.7x
  • Trefis’ forecast for Morgan Stanley’s 2019 earnings, as well as P/E multiple, are marginally higher than the market expectations, working out to a fair value of $55 for Morgan Stanley’s stock, which is roughly 5% higher than the current market price of around $53.

Additionally, you can input your estimates for Morgan Stanley’s key metrics in our interactive dashboard for Morgan Stanley’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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