, the last of the big banks to report fourth-quarter earnings Thursday, may have saved the best for last.
The bank said it had net income of $516 million, or 29 cents per share, down from $1.51 billion a year ago. That included a charge related to the recent tax overhaul of $990 million—less than management had suggested in recent weeks.
Excluding the tax write-off, per-share earnings were 84 cents, ahead of 81 cents a year ago, and trouncing Wall Street expectations of 64 cents. Revenues of $9.5 billion were stronger than a year ago, when they totaled $9.0 billion, and also beat estimates of $9.2 billion.
On a phone call with analysts, CEO James Gorman said the bank had achieved the strategic objectives it had set out a year ago, including improving return on equity, whittling expenses, and returning more capital to shareholders. “In each instance, our 2017 results are in line with or better than the target ranges,” Gorman said.
For Steven Chubak, an analyst with Nomura Instinet, the results showcased “balance” and earnings “resiliency.”
“Despite some pockets of revenue weakness (notably fixed income, currencies and commodities), we believe these results really showcased the key tenets of the MS bull case, including balanced results / earnings consistency,” Chubak wrote. “Against a difficult trading backdrop MS’s results look very impressive.”
Chubak has a “buy” rating on the stock with a $64 price target, 15% higher than its Thursday trading level.
In contrast, he’s neutral on Morgan Stanley’s rival, Goldman Sachs
which made little mention of its own strategic plan, which aims to find an additional $5 billion of revenue over the next three years, when it held its analyst earnings call Wednesday.
For the fourth quarter, Goldman posted its first loss in six years, and was the only big bank to record revenues that were lower than a year ago. UBS analysts called it “a year to forget for Goldman,” asking, “can they turn the page?”
UBS’s Brennan Hawken has a “buy” rating on Morgan Stanley, and a $64 target as well. That target, he said, “assumes Morgan Stanley will trade at roughly 12.5x our 2019 EPS estimate of $5.15 in 12 months. We believe asset sensitivity, strong wealth management results, and the potential for improving investor risk appetite should drive a higher valuation.”
Like many banks, Morgan Stanley expects a new lower tax rate thanks to the Republican tax cuts passed in late December. CFO Jonathan Pruzan said the new rate would be 22-25%, down from 31%.
But unlike its peers, Morgan Stanley was one of the few banks unsullied by exposure to Steinhoff Holdings. Banks have had to write off hundreds of millions of dollars because of loans extended to the South African owner of Mattress Firm and other companies.
Morgan Stanley shares were up about 0.3% in midday trading, in contrast to a 0.2% decline in the S&P500
The bank’s stock has gained 30% over the past 12 months, while the KBW Bank
s up 24.5%. Over the past week, Goldman shares have lost more than 2.3%.