Morgan Stanley gaining strength

Morgan Stanley will announce its third-quarter figures on 19 October, and the bank is well positioned compared with its Wall Street competitors.

Canary Wharf
Source: Bloomberg

On an adjusted basis Morgan Stanley’s second-quarter earnings rose by approximately one-third. The bulk of businesses performed well, and retail banking along with investment banking had a good showing. Also performing well was the asset management unit. It has to be said that the trading division was by far the best earner, with revenue jumping over 30%. This is very impressive when you consider other investment banks are struggling to register a rise in trading revenue.

The equities and fixed income teams enjoyed the volatility of the Greek debt crisis, and it seems only Morgan Stanley can boost that from the summer.

As I previously stated, Morgan Stanley is still enduring high legal costs while its remuneration packages are also working again its cost-cutting scheme. The big picture is that litigation costs are not what they were, and while revenue keeps growing at double-digit levels the expenses will be overlooked.

Dealers are anticipating revenue of $8.56 billion and EPS of 64 cents when Morgan Stanley reveals its third-quarter numbers. This compares with the second-quarter revenue and EPS of $9.56 billion and EPS of 79 cents respectively. The finance house will report its full-year figures in January 2016, and traders are anticipating revenue of $36.88 billion and EPS of $2.96. This represents an 11% jump in revenue and a 28% rise in EPS.

Investment banks are bullish on Morgan Stanley, and out of the 35 recommendations, 17 are buys, 17 are holds, and one is a sell. The average target price is $0.08, which is 21% above the current market price. Equity analysts are not bullish on Goldman Sachs and out of the 32 ratings, ten are buys, ten are holds, and two are sells. The average target price is $211, which is 17% above the current price.

The number of short positions being taken out on Morgan Stanley has increased by over 30% since the second-quarter numbers were reported.

Shares in Morgan Stanley have been rising since October 2011, and despite the drop in August and September the upward trend is likely to continue with a move back to $42 is likely. Looking at the stock on a weekly chart, there is a spike on 20 June, and it could be an indication that the upward trend has come to an end.

Should the stock drop further support will be found at the October low of $30.15, and if it is punctured $28 will be the next level of support. 

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