On Friday, Morgan Stanley (MS) announced the sale of floating rate notes (FRN) valued at 1 billion yen and maturing in August 2016. The company will start the settlement from August 23, 2011.
The sale of notes will provide Morgan Stanley with some financial flexibility at this point. Also, the company’s initiatives to enhance liquidity will help pursue growth plans smoothly.
Earnings Recap
In July, Morgan Stanley reported a second-quarter 2011 loss from continuing operations of 38 cents per share, substantially lower than the Zacks Consensus Estimate of a loss of 63 cents. The company earned 80 cents from continuing operations in the year-ago quarter.
The Mitsubishi UFJ Financial Group Inc. preferred stock conversion resulted in a substantial loss during the quarter, though it enhanced the capital cushion. Without this negative impact, Morgan Stanley would have earned 64 cents per share from continuing operations.
Results were aided by strong investment banking performance and revenue growth in all the three business segments. However, higher interest and non-interest expenses dampened the results.
Estimate Revision Trends
Over the last 30 days, 5 out of the 15 analysts covering Morgan Stanley have lowered their estimates for the third quarter, while 6 of them moved north. Moreover, for fiscal 2011, 1 out of the 18 analysts has decreased its estimate, while 12 analysts have increased their estimates over the last 30 days.
Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of 49 cents per share, up 872.0% from the year-ago quarter.
Our Viewpoint
The company’s initiatives to enhance liquidity along with the ongoing restructuring and inorganic expansion will continue to be significant growth drivers. Nevertheless, there are concerns related to Morgan Stanley’s financials being marred by new regulatory restrictions and intense pricing competition.
Morgan Stanley currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, one of the company’s closest peers, The Goldman Sachs Group Inc. (GS) retains a Zacks #3 Rank.
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