Analysts Like Goldman’s Results, But They Love Morgan Stanley’s

(Bloomberg) -- Morgan Stanley is a clear winner, posting its biggest share rally since February 2017, after reporting third-quarter results earlier, garnering near-universal approval from Wall Street analysts picking through its report. Goldman Sachs Group’s stock is gaining too, but just the most since September 19, while its earnings are getting more of a cold eye.

Morgan Stanley is scoring the biggest gain in the S&P 500 Financials Index, while BlackRock Inc. and a host of regional banks, including Comerica Inc., were among the largest decliners. BlackRock’s and Comerica’s third-quarter earnings disappointed, with BlackRock flagging lower fees and investor anxiety, and Comerica’s loans slipping.

Here’s what analysts are saying about Goldman and Morgan Stanley:

KBW, Brian Kleinhanzl

Goldman’s earnings beat on revenue, but “sustainability is an open question,” Kleinhanzl writes in a note. Goldman “posted solid results this quarter but comments on lower IB pipelines sequentially could limit the upside in shares.”

Morgan Stanley’s results were strong, Kleinhanzl says, "driven by better revenues in trading and investment banking," and shares are poised for outperformance today as the stock was a laggard into earnings. "Most importantly," Morgan Stanley delivered "a revenue and expense beat and posted 278 basis points of positive operating leverage year over year."

Rates Goldman market perform, PT $255; rates Morgan Stanley outperform, PT $56.

Barclays, Jason Goldberg

Goldman’s revenues increased 4 percent year-over-year, but fell 8 percent on a linked quarter basis, Goldberg writes. Investment banking fees for underwriting were better, but advisory worse, while FICC “was light,” and Investing & Lending, Investment Management and equities trading were better than expected. He notes that results also benefited from a lower-than-forecasted tax rate.

Morgan Stanley’s earnings per share topped expectations, with better-than-anticipated FICC, investment banking fees, and wealth management. Goldberg also flags "controlled" expenses.

Rates Goldman equal weight, PT $289; rates Morgan Stanley equal weight, PT $63.

Buckingham, James Mitchell

Both banks handily beat consensus expectations on strong underwriting results and solid expense discipline, Mitchell writes in a note. He sees Morgan Stanley’s report as likely to be "viewed as higher quality and met with more relief, given broad-based strength across businesses, including better-than-expected sales and trading results."

At the same time, Mitchell said investors are still worried about broader concerns, including the mergers and acquisitions cycle, and doubted third-quarter earnings would offer a “lasting catalyst” for banks, even though shares are currently “very inexpensive.”

Rates Goldman neutral, PT $292; rates Morgan Stanley buy, PT $69.

Bernstein, Christian Bolu

Morgan Stanley “checked all the boxes the bulls could have hoped for," with a top line beat, strong expense control, and wealth management net interest income growth. That came "amid very low expectations," Bolu writes. “There should be enough here to get the stock going from what feels like oversold levels.”

Goldman had "a thesis affirming quarter." Bernstein still likes owning Goldman shares, "given low expectations, compelling valuation and acceleration of the growth strategy" as a new management team takes over.

Reiterates Goldman outperform rating, PT $300; Morgan Stanley market perform rating, PT $51.

Bloomberg Intelligence, Alison Williams

Strength at Morgan Stanley and Goldman “tops off a solid quarter across the largest banks with trading, underwriting and wealth and asset management buoyed by stock price strength.”

“Across the largest banks, cost execution and strong credit were highlights, as expected, while loan growth was in-line to disappointing.”

“The outlook remains a key question entering 2019, while deposit pricing continues to perform well. Higher long-term interest rates may pressure mortgage while a rise in volatility could aid trading in the typically seasonally weaker” fourth quarter.

Opimas, Octavio Marenzi

“Morgan Stanley’s results continue to impress. Revenues from investment banking were particularly strong in equities and debt underwriting, where Morgan Stanley by far outperformed results we saw earlier from Citigroup and JPMorgan. In trading, Morgan Stanley was able to avoid any pitfalls, eking out modest growth for equities and fixed income trading. Wealth management, with its 4 percent year-over-year growth, continues to be reassuringly boring.”

“Goldman Sachs’ earnings are a big win for the firm. This is particularly true for the firm’s investment banking franchise, where revenues for equities underwriting more than doubled --—far outstripping rivals Morgan Stanley and JPMorgan. The fears that FICC revenues would suffer this quarter were met, but the blow was cushioned by higher revenues from FX and commodities trading.”

©2018 Bloomberg L.P.