E A Look At Bank´s Quarterly Results: Did Hedge Funds See This Before?

Morgan Stanley Better-Than-Expected Results

Morgan Stanley (MS) reported its second-quarter earnings while shares climbed in the market. Figures were well above analyst´s estimates, led by an increase in the fee for trading and brokerage services.

Net revenues reached $9.74 billion beating expectations of $9.1 billion and posted earnings of $1.81 billion or $0.85 per share, or $0.79 per share on an adjusted basis, beating the analyst´s estimate by $0.05 cents, according to Thomson Reuters. “We delivered a strong quarter across each of our businesses," Morgan Stanley CEO James Gorman said in a statement.Excluding a one-time tax benefit received in the same quarter a year ago, Morgan Stanley achieved growth in all of its core businesses.Equities revenues rose to $2.34 billion, trading revenue was up 32% to $3.5 billion from $2.65 billion while fixed income and commodities revenues rose to $1.3 billion from $1 billion.

In fact, these numbers do not surprise me because in the first quarter, the bank also had a very good quarter. In that quarter, revenues rose to $9.91 billion, or $9.78 billion excluding accounting adjustments beating expectations of $9.17 billion. The bank posted a profit of $2.39 billion, higher than the $1.51 billion in the same period of 2014, as well as earnings per share had beaten analyst’s expectations ($1.14 vs $0.78).

In terms of valuation, the stock sells at a trailing P/E of 19.82x, trading at a slightly premium compared to a median of 19.2x for the industry. To use another metric, its price-to-book ratio of 1.19x also indicates a slightly premium versus the industry median of 1.2x while the price-to-sales ratio of 2.25x is below the industry average of 3.67x. In my opinion, these ratios indicate that the stock is relatively undervalued, so it would be appropriate a buy recommendation.

Hedge fund guru Ken Griffin was bearish on Morgan Stanley during the second quarter, trimming his stake in the bank to 349,865 shares.

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Disclosure: Omar Venerio holds no position in any stocks mentioned.

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