Morgan Stanley (NYSE: MS) is scheduled to report its fiscal Q2 2021 results on Thursday, July 15. We expect Morgan Stanley to beat the earnings consensus estimates, while revenues fall short of expectations. The firm reported better than expected results in the first quarter of 2021, with positive revenue growth across all businesses. While its sales & trading and investment banking businesses led the pack, the bank also witnessed strong asset growth in both wealth management and investment management segments. We expect the wealth and investment management businesses to continue to drive growth in the second quarter, although its sales & trading and investment banking revenues are likely to see some decrease on a sequential basis.
Our forecast indicates that Morgan Stanley’s valuation is around $89 per share, which is 4% less than the current market price of around $93. Look at our interactive dashboard analysis on Morgan Stanley’s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be marginally below the consensus estimates in Q2
Trefis estimates Morgan Stanley’s fiscal Q2 2021 revenues to be around $13.72 billion, marginally below the $13.96 billion consensus estimate. MS’ top-line surged 16% in 2020, touching $48.2 billion, primarily driven by a jump in sales & trading and investment banking revenues. The growth was further complimented by a rise in wealth management revenues. Notably, the wealth management total client assets received a big boost from the acquisition of E*TRADE in the last quarter of 2020. The same trend continued in the first quarter of 2021 as well, with the institutional securities (sales & trading and investment banking) segment posting 66% y-o-y growth. It includes a 3.5x growth in the equity underwriting revenues driven by higher deal volumes of IPOs, blocks, and follow-on offerings. Further, the wealth and investment management segments saw strong revenue growth driven by net new assets and fee-based flows. That said, we expect the institutional securities revenues to report some sequential drop in Q2 due to lower underwriting deal volume. However, all other businesses will likely continue their growth trajectory in the quarter.
Moving forward, the sales & trading and investment banking revenues are expected to normalize over the coming months, with recovery in the economy. It will likely result in stagnant growth in the institutional securities segment in 2021. On the flip side, the wealth management and asset management businesses are expected to drive growth in the year. Overall, the firm’s revenues are likely to touch $54.6 billion in FY2021. Our dashboard on Morgan Stanley revenues offers more details on the company’s segments.
2) EPS likely to top the consensus estimates
Morgan Stanley’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.72 per Trefis analysis, 4% above the consensus estimate of $1.65. MS’ profitability figures improved in 2020, thanks to the higher revenues and lower operating expenses as a % of revenues. The same trend continued in the first quarter of 2021 as well and is expected to drive second-quarter results, too.
Morgan Stanley’s net income margin is likely to see some decrease in FY2021, resulting in a net income of $10.7 billion. Further, the bank has recently announced a share repurchase program of $12 billion, valid for the next four quarters. This will slightly improve the MS EPS figure to $6.89 in FY2021.
(3) Stock price estimate 4% less than current market price
Going by Morgan Stanley’s valuation, with an EPS estimate of around $6.89 and a P/E multiple of just below 13x in fiscal 2021, this translates into a price of $89, which is 4% below the current market price of around $93.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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