Morgan Stanley (NYSE:MS) reported better than expected earnings of 50 cents per share this morning before the market opened. There has been a strong reaction to the earnings report on Wall Street in early trading. Analysts were estimating that the company would show earnings of 40 cents per share for the third quarter of the year.
Citigroup Inc (NYSE:C) analyst Keith Horowitz isn’t all that positive on Morgan Stanley (NYSE:MS) in the wake of the earnings report. He reckons the investment bank is fully valued at around $30 per share. According to his analysis core EPS at Morgan Stanley was 41 cents per share. The additional earnings seen in the earnings report were from tax benefits and a strong equity performance.
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Morgan Stanley core EPS
According to the Citigroup Inc (NYSE:C) analysis the beat on Morgan Stanley (NYSE:MS) earnings was composed of two major factors. A four cents per share tax benefit in the third quarter and a 4-5 cents per share gain on strong equity performance. Morgan Stanley’s FICC unit performed worse than the rest of the sector during the period.
The earnings report highlight the market sensitivity of Morgan Stanley (NYSE:MS). According to Horowitz, “If market is moving higher, MS will benefit from being market sensitive.” Morgan Stanley earnings for the third quarter are not as impressive as they seem at first glance. Much of the beat was from once off wins. The investment bank can’t expect to beat the pack on equities forever.
Fixed Income came in worse than the Citigroup Inc (NYSE:C) analyst expected, despite the poor results in the area across this quarter’s financial earnings reports. Morgan Stanley (NYSE:MS) was down 28% in FICC, while the group was down by around 22% on average.
Valuing Morgan Stanley
Citigroup Inc (NYSE:C) thinks that Morgan Stanley (NYSE:MS) is fairly valued at around $30 per share. Shares hit very close to that number in pre-market trading this morning, but have sagged since. At time of writing shares in the investment bank stand at $29.67, up 2.56% for the day’s trading.
A $30 per share price puts Morgan Stanley (NYSE:MS) at around 1.1 times Tangible Book Value. Horowitz says “it’s not clear that estimates need to move higher and we believe the initial reaction may fade throughout the day.” Morgan Stanley earnings were good, but they barely beat estimates given the one off nature of much of the beat.