Rough trading has led to sluggish performances for a number of key investment houses as of late, including Morgan Stanley ( (MS – Analyst Report). The well-known investment firm has seen its shares tumble by over 7.5% in the past month, while it has plummeted 20% in the past six months as well. But what’s behind this intense selling pressure, besides the overall weak trading environment?
Well the idea that the federal government won’t step in during the next crisis isn’t exactly a plus for MS investors, but there are definitely other issues for Morgan Stanley right now. Recently, the company announced a nearly quarter of a billion dollar settlement to settle MBS claims from the financial crisis, while it also recently cut 1,200 jobs in its FICC (fixed-income, currencies and commodities) unit. The job cuts are also expected to result in $150 million in charges for Q4, adding to Morgan Stanley’s woes.
But the real problem remains the toxic trading environment and the impact this will have on the MS bottom line. We already saw this in the previous quarter’s earnings announcement which easily missed expectations, and with recent worries in the markets there is plenty of reason to believe a similar situation will happen this quarter too. This may be especially true if you look to analysts and their recent earnings estimates for Morgan Stanley stock.
Analysts have actually been racing to slash their estimates for MS stock lately as not a single estimate has gone higher for the current year, next year, or current quarter in the past sixty days. Instead we have seen a huge level of agreement among covering analysts that recent earnings expectations are just too high relative to what MS is likely to produce in the near term.
Current year estimates have fallen from $3.03/share to $2.54/share in the past 90 days, while the current quarter estimate has slumped from $0.64/share to $0.50/share in the same time frame. And the most accurate estimates we have are even worse, with the current quarter seeing a 12% decline from even this low consensus.
All of this is pretty awful news for MS investors and especially when you consider that Morgan Stanley has a hard time in living up to expectations on a regular basis. In the past four quarters the company has missed estimates in two of them pushing MS to an average surprise of -12% over the past four quarters.
With these kinds of numbers, it shouldn’t be much of a surprise that MS has earned itself a Zacks Rank #5 (strong sell) and is currently ranked in the bottom 5% of all stocks that we cover, making it a security that you definitely want to avoid right now.
The investment broker industry currently has a pretty weak rank and is actually in the bottom 20% right now. There are far more ‘sell’ ranked securities than ‘buy’ ranked ones in this industry, and there are flat-out just better areas of the financial space to look to in the near term. But if you are dead-set on this area of the financial world, than a look to E-Trade Financial (ETFC – Analyst Report) could be an excellent idea.
Not only does this stock have a Zacks Rank #1 (Strong Buy), but it has a much better track record at earnings season, including an average beat over the past four quarters of 14%. Add in the natural benefit that a stock like this will have when rates rise—thanks to more interest income off of the float—and this could be a winning pick in the broker space, and especially when compared to the still struggling Morgan Stanley in the near term.
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