Morgan Stanley (Ticker Symbol: MS) released earnings and revenue on Thursday before the open that were better than analysts were expecting. The multinational investment bank and financial services company reported an earnings per share beat of $1.23 a share vs. Wall Street analysts’ expectations of $1.14 per share. Morgan Stanley reported a revenue beat that came in at $10.24 billion vs. Wall Street analysts’ expectations of $9.99 billion. The companies equities trading arm reported a slight miss of $2.13 billion in revenue vs. $2.2 billion that analysts’ were expecting. Additionally, the fixed income trading unit reported $1.13 billion in revenue missing analysts’ expectations of $1.32 billion.
The Federal Reserve reported its annual stress tests to measure the financial health of the top financial institutions in the country at the end of June. The Federal Reserve released that the top U.S. banks passed the stress tests and that they would be allowed to pay capital out to their shareholders. After the results of the test, Morgan Stanley increased its dividend by .05 cents to .35 cents a share. The bank also announced an increase to its stock buyback program raising its stock repurchases to $6 billion.
Above is a long term chart of Morgan Stanley’s chart spanning back eight and a half years. The stock spent the majority of 2011 and 2012 trading negatively until finding support around the $12.00 price level. Morgan Stanley began to form a Double Bottom reversal pattern. A Double Bottom occurs when the price of an asset reaches a low price, has a small rally, then retests that low failing to break below it. The pattern is confirmed once it breaks above the high between the two prior lows. Morgan Stanley broke out of it Double Bottom and proceeded to trade higher for two and half years rallying over 100%.
Shortly after, the stock began to top, forming a bearish divergence pattern, as indicated on the chart by the purple lines, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Morgan Stanley’s case. Morgan Stanley pulled back nearly 50% before finding price support just above the $20.00 price level. The stock then went on nearly a 100% rally from the first quarter of 2016 until the first quarter of 2018. The stock is currently sitting just above both its 100 and 200-Day Moving Averages.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 2 analysts offering 12-month price targets, the average price target for Morgan Stanley’s stock is $52.50. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $44.43.
Morgan Stanley was the last of the six major U.S. banks to report earnings this season and so far they have all beaten their earnings estimates. Long-term investors are being rewarded for holding Morgan Stanley’s stock through its capital appreciation and its yearly payouts through dividends. Investors in Morgan Stanley’s stock should be watching its price action for a break above or below its 100 and 200-Day Moving Averages.