Morgan Stanley (NYSE: MS) shares were 3% higher following the company's Q3 earnings report which exceeded analysts' consensus estimates on the top and bottom-line. The results weren't exactly surprising given that the financial sector has been topping analysts' estimates across the board, and companies with more Wall Street exposure, like Morgan Stanley, have done the best among their peers due to strength in investment banking, asset management, and a robust IPO market.
Inside the Numbers
In Q3, Morgan Stanley posted $1.98 in earnings per share, topping expectations of $1.68 per share. Revenue also beat expectations at $14.75 billion vs. $14 billion. Both figures were above last year's Q3 by 25%. Growth was aided by the company's acquisition of E-Trade and Eaton Vance which gave it a stronger presence in wealth management and asset management.
The quarter marked many records for the company in terms of revenues, margins, asset levels, and investment banking revenue. Morgan Stanley also benefited from the size of its equity trading business which remained strong in Q3 despite weakness in fixed income. Overall, equities trading revenue was 24% higher, while fixed income revenue declined by $16%.
Morgan Stanley is also one of the leading investment banks in the world and saw a 67% increase in revenue to a record $2.85 billion due to high levels of M&A activity and a steady stream of companies going public. Wealth management saw a 28% increase in sales compared to last year due to the bull market in stocks, leading to increased proceeds for the firm's advisors.
Stock Price Outlook
Morgan Stanley shares are up by nearly 50% YTD. From a technical perspective, shares have been consolidating between $98 and $105 since July. The latest earnings report, strength in financial stocks, and a bullish market could be sufficient catalysts for a breakout.
One potential caveat is that while Wall Street-centric banks have outperformed their Main Street-based peers due to the broad economy's recovery in fits and starts, this trend may reverse as the Fed looks to tighten its policy, while inflationary pressures mean that financial assets become less attractive compared to real-world assets.
Despite this potential headwind, the company's shares remain attractive with a P/E of 13 and a 2.8% dividend yield.