Last Friday, when the global financial services company, Morgan Stanley (MS, Financial), released its third quarter numbers, it left analysts and investors agape and sent a positive wave to the stock market where the share prices rose in early trading hours. The share price rose nearly 5% before the opening bell, reflecting the inherent strength in the third-quarter results. Let’s check what was portrayed in the report card of Morgan Stanley which has sent its stock price higher than expected by analysts’ estimates. And also let’s assess why the company shares remain a strong buy for investors. Here’s the total story.
A quick quarter recap
The company reported revenue of $8.9 billion, a nearly $1 billion increase over the similar quarter of last year. Also the revenue outpaced the Street consensus which stood at $7.98 billion in terms of revenue for the quarter. Remarkable was the bottom-line which saw the net profit at $1.7 billion, nearly double from $889 million reported in the year-ago quarter and resulted in earnings per share of $0.84 per share. This was notable as the earnings surged nearly 87% from the year-ago quarter for Morgan Stanley.
Excluding special items, net income was $1.6 billion or $0.77 per share, beating the $0.54 per share earnings estimated by analysts.
Chairman and CEO James Gordon stated during the earnings call, “Morgan Stanley has delivered another quarter of earnings growth and strong performance based on consistent execution for our clients, we are well positioned to create superior returns for our shareholders, particularly as the U.S. economy continues to strengthen.”
Investors need to rejoice as the shares were up 3.6% on the day the results got released from the company’s corner. Year to date the stock was up 4.3%. Let’s have a closer look at the operating segments which aided in the top and bottom line phenomenal growth.
The core segments remain promising
The major two areas in which Morgan Stanley shined this quarter were the trading and advisory services and the wealth management services. The bank’s institutional securities segment reported $4.5 billion as revenue for the quarter, up 22% from last year similar quarter. This was mainly attributed to the increased advisory services, sales and trading revenues and fixed income trading revenue during the quarter.
The wealth management wing also reported an 8% improvement in revenue from that reported last year standing at nearly $3.8 billion from $3.5 billion reported last year. There was a boost in asset management fee revenue of $300 million this quarter that grew due to the market appreciation as well as improvement in client base in the quarter. The fee based accounts rose nearly 18% to $768 billion this quarter.
Rewarding the investors
The company reported repurchase of approximately $195 million of its common stock or around 5.9 million shares during the quarter. Also the firm declared quarterly dividend of $0.10 per share, payable on November 14 to stockholders with record date of October 31.
This shows that the company knows how to keep its investors interested in the stock by rewarding them on a regular basis.
A look at the charts
Morgan Stanley has always been a risky investment. But investors are ready to take the risk remembering how Alibaba (BABA, Financial) performed in the stock market after the IPO offering cumulated $25 billion and created a new record at the NYSE, the underwriter being Morgan Stanley in the transaction. This transaction led to a surge in its underwriting revenue which nearly doubled to $464 million this quarter.
At the end of the third quarter, the company’s book value stood at $34.17, and the tangible book value was $29.25 per share. Post the earnings; the company’s strong financials makes the stock a viable investment option for investors speculating in the shares before the earnings were out.
To conclude
Morgan Stanley is a safe investment option for investors as the company is financially sound and has the ability to generate enough cash to keep the shareholders delighted and contended. So, investors should hold on to their positions in the stock or can take new positions in Morgan Stanley stock for earning better returns in the near future.
