Riding the Wave with Morgan Stanley (NYSE: MS) Stock

Morgan Stanley (MS) is currently trading at $28.97 per share up 0.10% or $0.03. The stock has a 52-week trading range of $21.16 on the low end and $39.72 on the high end. At current prices, the market capitalisation is $56 billion and the stock has a price/earnings ratio of 13.37, indicating good value for money. The diluted earnings per share is presently 2.16. The next earnings date for Morgan Stanley is scheduled for October 17 through October 21, 2016.

Analysts give this stock a 1-year target estimate price of $32.50. In terms of earnings and performance, Morgan Stanley has bested forecasts since Q4 2015. In Q3 2015 the actual earnings figures (revenues and EPS) was substantially less than the estimates. By the end the Q2 2016, the actual earnings far exceeded estimates and this resulted in a spike in the price of the company’s stock.

Recently, Morgan Stanley reported its quarterly earnings for Q2 2016, and analysts agree that the overall results are positive. Actual earnings and revenues exceeded expectations, but there were also strong results reported with fixed trading and equities trading. There were serious questions about the ability of the CEO meeting all the expenditure cuts that he had laid out prior to the release of quarterly earnings.

But the good news is that Morgan Stanley has posted positive results all round. According to the reports, fixed income trading was up $300 million over the estimate. This paints a positive picture for the company and for investors. Year on year, profits at Morgan Stanley are down just 6%, and this is a remarkable achievement given the hammering that financial markets have taken in 2016.

In terms of the negatives to be taken from the earnings report for Morgan Stanley there is nothing substantial that traders or investors need to look into. Recall that banks were expecting at least 2 rate hikes in 2016, but this did not come to pass owing to the global volatility. The Fed has made it clear that strong domestic data is setting the scene for a rate hike later in 2016. Banks like Morgan Stanley have not been able to capitalise on higher interest rates, but they have been embarking on dramatic cost-cutting programs to drive up profits.

8.3% return on equity boosts Morgan Stanley stock

In terms of negatives for Morgan Stanley, the CEO, Gorman, announced that there have been cuts of 25% of fixed income trading for the banking giant. The CEO is looking for approximately $1 billion in the trading business. Analysts are likely to discount the trading numbers from Morgan Stanley, given that figures are continually being scaled back. Traders are looking for stability in Morgan Stanley revenue, and the constant back-and-forth with trading revenues is a slight concern. The good news though is that the return on equity for Morgan Stanley is 8.3%.

The company’s bond trading business appears to be making headway. In terms of revenue generated by the bond trading sector, Morgan Stanley defied expectations and posted strong earnings. It also helped that cost-cutting initiatives have been succeeding in a big way with Morgan Stanley. The CEO Morgan Stanley has scaled back business operations in recent years owing to the big hits the company was taking in the commodities market and in the currency trading arena. According to the CEO, “… My view was that there was a general over-reaction to the underperformance…” This appears to be holding true given the boost the stock has enjoyed of late.