In June 2005, John Mack took the helm of Wall Street investment bank Morgan Stanley and vowed to revive its operations, including an underperforming brokerage unit and flagging asset-management business. Mack took the chief executive post after a shareholder revolt, motivated by years of disappointing performance, pushed Philip Purcell out of the job.
A year later, it appears that Mack's magic may be working. The firm stunned Wall Street on Wednesday with its second-quarter results: Earnings more than doubled, to $1.86 per share -- up from 86 cents in 2005's second quarter. Those results blew past analysts' expectations of $1.45 per share. Meanwhile, revenues soared 48%, to $8.9 billion, driven by gains in nearly every business.
The earnings release sent Morgan Stanley's stock (symbol MS) up 4.3% on Wednesday. The stock added another 53 cents on Thursday, closing at $60.01. Some analysts took the news as a sign that Mack's turnaround efforts are starting to pay off. Prudential analyst Mike Mayo upgraded the stock from neutral to "overweight," with a 12- to 18-month price target of $65. "Overall, we had a positive meeting with [Mack] a couple of months ago and now we see better results to back up his optimism," Mayo wrote.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Morgan Stanley's shares trade at just 11 times the $5.47 a share that analysts expect the firm to earn during the fiscal 2007 year, which ends next November, according to Thomson First Call.
The lion's share of Morgan Stanley's revenue increase came from its primary business, institutional securities, a unit that has "seemingly good momentum," Mayo wrote. Revenue in that business rose 71%, to $5.7 billion, fueled by more stock sales and trading, as well as increased bond and commodity trading. Morgan Stanley's other businesses -- asset management, credit cards, and retail brokerage -- all saw modest gains. Mayo says he thinks these units are "at worst, stabilizing, if not getting somewhat better." The firm's asset management group posted a 13% revenue increase, while sales in its retail brokerage unit grew 14%. Revenue from the Discover credit card unit rose 34%.
Prashant Bhatia, a Citigroup analyst, wrote in a letter to clients Thursday that the second-quarter results "continue to demonstrate that Morgan Stanley management is successfully executing its growth plan." Bhatia reiterated his buy rating on the stock and 12-month price target of $75.
Morgan Stanley isn't the only major Wall Street investment bank to post eye-popping second-quarter results. Rivals Goldman Sachs, Bear Sterns, and Lehman Brothers all reported sharply higher earnings verses the year-earlier period.
-
Aging: The Overlooked Risk FactorSponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
My Three-Day Rule for Investing: And If it Applies NowStock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Stock Market Today: Uncertainty Proliferates: Dow Loses 1,014 PointsWeaker-than-expected consumer inflation data wasn't enough to stabilize sentiment during another volatile day for financial markets.
-
Stock Market Today: Dow Rises 854 Points From Its Intraday LowIf there's one thing markets hate, it's uncertainty. But uncertainty is all they're getting these days.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
