Morgan Stanley's Q2 Results Earn It A Higher Price Target From UBS

UBS raised its estimates and price target on Morgan Stanley MS after it announced better-than-expected adjusted earnings and revenue for the second quarter.

Commenting on the results, UBS said "resiliency in a tough market should allow for more comfort with the story."

"MS's FICC results certainly were a positive surprise but given the ongoing restructuring we caution against annualizing this quarter's results. Management is targeting revenues in the +/-$1 billion per quarter range, so this quarter seemed more robust than should be expected near-term, particularly given the increase in activity around the EU referendum," analyst Brennan Hawken wrote in a note.

That said, despite the company's wealth management business resilient in front of DOL rule, the expenses MS is incurring for implementation of the DOL rule could hit margins.

"We estimate recruiting expenses, through the amortization of employee forgivable loans, represent a 30-50 bps headwind to MS's pre-tax WM margins per year. Thus, if recruiting slows as we expect, this reduced cost could help moderate the upward expense pressure from the higher compliance burden," Hawken elaborated.

However, Hawken raised his 2016 EPS forecast by $0.32 to $2.65, half due to a higher FICC revenue estimate and half due to the second quarter beat. The analyst also lifted 2017 EPS estimate by $0.15 to $3.10, primarily due to a higher outlook for FICC revenues.

Hawken, who maintained a Buy rating on the stock, raised his price target to $34 from $32.

Morgan Stanley reported net income applicable to its shareholders of $1.6 billion or $0.75 per share, down from net income of $1.8 billion or $0.85 per share in the year-ago quarter. Excluding DVA in the prior year quarter, net income applicable was $1.7 billion, or $0.79 per share. This was higher than the Street analysts' estimation of $0.50 a share.