Morgan Stanley had the highest return on tangible common equity in more than a decade.
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There is a new bull case for Morgan Stanley shares—even if Tuesday’s trading doesn’t reflect it.
Analysts at Piper Sandler lifted their target for Morgan Stanley’s (ticker: MS) stock price by $5 to $87, following the release of the bank’s first- quarter earnings results last week. Shares changed hands at $77.59 early Tuesday afternoon, following a 3% drop in midday trading. The SPDR S&P Bank ETF (KBE) was down 2.9%.
The Piper Sandler team was encouraged by Morgan Stanley’s better-than-expected results. They had forecast earnings of $1.67 a share, but the investment bank delivered EPS of $2.19 a share, which even eclipsed the consensus forecast of $1.72.
And the stellar quarter came even though the bank posted a $911 million trading loss tied to the blow up of Archegos Capital. Even with the trading loss, Morgan Stanley’s return on tangible common equity, or ROTCE, was 21.1%—the highest in more than a decade and above the bank’s own target of 17% for that metric.
“While the size of the single counterparty loss raises some risk management concerns, MS still managed to report its highest ROTCE in over a decade,” Jeffrey Harte, managing director at Piper Sandler, wrote Tuesday.
With strong earnings booked for the first quarter, Piper Sandler lifted its full-year earnings targets for both 2021 and 2022 to $6.75 a share, up from $5.82 in 2021 and $6.23 in 2022.
“Our 2021 estimate increase is driven by a combination of the 1Q21 beat and improved revenue forecasts for the balance of the year,” Harte wrote, while maintaining his Neutral rating on shares. “Our 2022 estimate increases are primarily driven by improved revenue forecasts.”
Morgan Stanley has been one of the better-performing banks over the last year thanks to robust trading and deal-making activity. The flow of planned transactions remains robust, though some industry analysts worry if the pace of initial public offerings and SPAC offerings may soon slow.
Still, Morgan Stanley is off to a strong start this year.
Write to Carleton English at [email protected]
