Morgan Stanley (NYSE: MS) stock has given a return of 7% year-to-date. The stock fell 25% in 2018. Before you decide to invest in the stock let us analyze some of the key points.
The company released its fourth quarter and full year 2018 results on January 17, 2019. Revenue for the fourth quarter fell 10% year-on-year to $8.55 billion. Earnings per share came at 73 cents compared to 84 cents for the same period last year. The company missed EPS estimates by 16 cents and revenue estimates by $750 million. It’s a bit unusual for the company to miss analyst estimates. Full-year revenue rose 5.8% year-on-year to $40.1 billion and EPS was $4.73 compared to $3.07 for last year.
Institutional Securities revenue segment for the fourth quarter fell 15% to $3.8 billion on account of lower trading revenues, equity underwriting, and fixed income underwriting revenues. There was an improvement in the M&A advisory revenues. M&A activity industry growth is expected to continue into 2019. Wealth Management revenues fell 6.3% to $4.1 billion, and Investment management fell 7% to $684 million. However, on a full-year revenue basis Institutional Securities revenue rose 9% to $20.5 billion, wealth management segment grew 2% to $17.2 billion, and investment management segment grew 6% to $2.7 billion.
The company has constantly increased its dividends. Its current dividend yield is 2.82%. In 2018 it repurchased shares worth of $4.9 billion as a part of the company’s objective of maintaining an attractive capital return policy. The company full-year return on equity (ROE) was 11.8% and Return on Average Tangible Common Shareholders’ Equity (ROTCE) was 13.5%.
It is currently trading at P/E ratio of 8.78 and a price to book ratio of 0.99. Valuations are cheap but growth will be slower in the current global environment. The company’s wealth management will grow steadily. It has been able to focus on high net-worth investors.
The company has announced recently that it will acquire Alberta-based Solium Capital (OTCPK: SIUMF) for $900 million. It is well known for Shareworks, software used by public and private companies to manage their employee’s stock options. The company has also launched a new platform named WealthDesk which is aimed at serving all of their advisor’s financial planning, advice, and implementation tasks.
Societe Generale analyst Andrew Lim downgraded the stock recently to Sell from Hold. Writes credit cycle deteriorations “has already been set in motion.” As purer investment banks, GS and MS are more exposed to pressure on market-sensitive revenues, he writes. Favors Bank of America (BAC +0.6%) and JPMorgan (JPM +1%) as defensive for the rest of the year.
Risks: Geopolitical risks have a major impact on banks. Trade wars increase the uncertainty in doing business and will have a negative impact on the company’s earnings. Many small start-ups have started to give similar investment banking services which would lower the company’s profits.
Conclusion: The stock is ideal for investors who are looking for a large-cap financial stock and understands that growth rate will be moderate in the long-term. However, it might not suit for investors with a short-term horizon as the company is in a mature life cycle.