Why Morgan Stanley Earnings Shattered Estimates

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Morgan Stanley (NYSE: MS) reported first-quarter 2017 results before markets opened Wednesday. The big bank reported diluted earnings per share (EPS) of $1.00 on net revenue of $9.7 billion. In the same period a year ago, the bank reported EPS of $0.55 on revenue of $7.8 billion. First-quarter results also compare to the consensus estimates for adjusted EPS of $0.88 on revenue of $9.27 billion.

Revenues and pretax income were all higher than in the same period last year: institutional securities revenues rose 39% to $5.15 billion and pretax profits were up 91%; wealth management revenues rose 11% to $4.06 billion and pretax profits rose 24%; and investment management revenues rose 28% to $609 million while pretax profits were up 134%. Consolidated pretax profit rose 62% year over year to $2.81 billion.

Return on average common equity rose from 6.2% a year ago to 10.7% and book value per common share rose from $35.34 to $37.48. Tangible book value per common share rose from $30.44 to $32.49.

CEO James P. Gorman said:

We reported one of our strongest quarters in recent years. All our businesses performed well in improved market conditions. We are confident in our business model and the opportunities ahead, while recognizing that the environment remains uncertain.

Market conditions were, indeed, better in the first quarter this year. Sales and trading net revenues rose by $800 million to $3.5 billion, primarily on the strength of fixed-income sales and trading, which was up by $827 million, enough to cover small losses in equity and other sales.

The bank did not provide guidance, but analysts have forecast second-quarter EPS of $0.84 and revenues of $9.24 billion. For the full year, analysts are looking for EPS of $3.39 and revenues of $36.71 billion.

Morgan Stanley’s stock traded up nearly 2% in Wednesday’s premarket session at $42.00. It closed Tuesday at $41.21, in a 52-week range of $23.11 to $47.33. The consensus 12-month price target on the stock is $47.24.