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Morgan Stanley’s Second Quarter Results Disappoint

Story Highlights

Amid a tough economic environment, Morgan Stanley’s results for the second quarter have taken a hit. However, the company’s capital deployment activities see no signs of slowing down.

Financial services major Morgan Stanley (NYSE: MS) reported weaker-than-expected results for the second quarter ended June 30, 2022. The muted results were on the back of both revenue and earnings falling short of expectations.

The weak results have affected the stock price adversely, as the shares of the company are down almost 1% in the pre-market hours.

Revenue, Earnings Sink

Morgan Stanley reported quarterly net revenues of $13.13 billion, down 11% from the previous year. Further, the figure missed the consensus estimate of $13.48 billion. A year-over-year decline of 13.7% and 5.9% in net revenues from institutional securities and wealth management, respectively, dragged down the overall growth in revenues for the company.

The company’s earnings per share (EPS) for the quarter came in at $1.44, which denotes a decline of 24% from the prior year. Moreover, the figure failed to surpass the consensus estimate of $1.57.

Key Operating Metrics: A Glance

Morgan Stanley’s key return ratios deteriorated from the previous year. Return on equity fell from 13.8% to 10.1%, while return on tangible equity fell from 18.6% to 13.8%. However, the company’s tangible book value per share remained almost unchanged from the previous year at $40.07.

The company’s Standardized Common Equity Tier 1 capital ratio also showed a decline from the previous year’s level of 16.6% to 15.2%.

Capital Deployment Activities

During the quarter, Morgan Stanley repurchased outstanding common stock worth $2.7 billion. This marked the completion of the company’s $12 billion buyback plan, announced last year. Furthermore, during the quarter, the company announced a new multi-year share repurchase program of $20 billion.

Meanwhile, the company also raised its dividend for the quarter by 11% to $0.775 per share. The dividend will be paid on August 15, 2022, to shareholders of record as of July 29, 2022.

Notably, the company’s dividend yield of 3.69% is much above the sector average of 2.11%.

Management’s Commentary

CEO of Morgan Stanley, James P. Gorman said, “Strong results in Equity and Fixed Income helped partially counter weaker investment banking activity. We continue to attract positive flows across our Wealth Management business, and Investment Management continues to benefit from its diversification. Finally, we finished the quarter in a strong capital position to ensure we move forward with confidence.”

Wall Street’s Take

Overall, the Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 14 Buys and five Holds. The MS average price target of $94.47 implies the stock has upside potential of 26% from current levels. Shares have declined 18.9% over the past year.

Investors are Loading up on the Morgan Stanley Stock

The TipRanks’ Stock Investors tool shows that top investors currently have a Very Positive stance on MS. Further, 9.8% of the top portfolios tracked by TipRanks, increased their exposure to MS stock over the past 30 days.

Key Takeaways

Morgan Stanley’s results were a disappointment, with revenue and earnings both witnessing a decline from the previous year. Further, weakness in some of the key operating metrics also remains a cause of concern for the company. However, the company’s active capital deployment activities in the form of heavy share repurchases and high dividend yields are expected to attract investors and provide support to its dwindling share price.

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