Last Thursday, Morgan Stanley (NYSE:MS) released first-quarter 2014 financial results, prompting its stock to break out above the $30 marker as it continues to recover from a sell-off that started about a month ago. Given the relatively positive results reported by Bank of America (NYSE: BAC), whose profitability suffered from outsized litigation costs, and the profit beat reported by Citigroup (NYSE: C), expectations for Morgan Stanley were probably bullish. If they were, the company did not disappoint.
Strength seen across all business segments
Overall, Morgan Stanley increased its net revenues nearly 9% compared to Q1 2013, to $8.9 billion. This translated into income of $1.5 billion, which is up 53% compared to the same period last year. Diluted EPS came in at $0.72, up 47% from Q1 2013. Importantly, all of these numbers reflect strength in a strong turnaround in Morgan Stanley's debt valuation adjustment positioning via debt-related credit spreads and other credit factors, a piece of its financials that was a drag on earnings during Q1 of last year.
Less impressively, its Wealth Management segment increased its net revenues by about 3% year over year, to $3.6 billion, which translates into a 16% increase in its pre-tax income. Nonetheless, one cannot take away the strong results across the board, especially given the weakness signaled by other banks like JPMorgan Chase & Co and Credit Suisse GroupYet, Morgan Stanley reports its revenues across three different business segments. As such, its largest segment, Institutional Securities, increased its net revenues by 12% year over year, to $4.6 billion. This translates into pre-tax income from continuing operations of $1.4 billion, reflecting a 75% increase compared to Q1 2013. This dramatic upswing can be largely attributed to increased advisory revenues, equity and fixed-income underwriting revenues, as well as strong Fixed Income & Commodities sales and trading net revenues. Similarly strong, Morgan Stanley's Investment Management segment reported $740 million in net revenues, an increase of 15% compared to Q1 2013, which led to a 41% increase year over year in its pre-tax income.
Final Foolish takeaway
Given Morgan Stanley's strong financial results, investors perhaps want to take a hard look at whether this financial stock, currently trading at about 12x the current year median P/E, deserves to make it into their portfolios. Considering the strength in business outlined above, coupled with the way the firm repurchased about $150 million of its common stock during this past quarter, it sure seems like a strong bet.
Additionally, Morgan Stanley has also just announced a share repurchase of up to $1.0 billion of common stock to begin the second quarter of 2014, and also doubled its dividend to $0.10. It seems like the company appears to like its prospects. Although this dividend yields just 0.67%, it is still a strong signal because investors have only seen steady or declining dividends since the start of 2004. With an overall overweight designation by Wall Street, perhaps investors can jump on board before some of the hold ratings get upgraded to buy ratings, and this stock really takes off.
Fool contributor Hugo St. John III has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.