Marshall & Ilsley Corporation (MI) reported its first-quarter 2010 results on April 20. Loss for the reported quarter came in substantially lower than the Zacks Consensus Estimate. Investors were clearly very impressed by this narrower-than-expected quarterly loss. As a result, the share price significantly soared following the earnings release.
Also, analysts covering the stock now have responded positively as they had sufficient time to absorb and weigh the fundamentals.
Let’s now cover the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for both the short-term and the long-term outlook for the stock.
Earnings Report Review
Beating the estimates considerably is a definite positive for the stock price. However, there are several negatives, including increased non-interest expense and lower average loans and leases, that kept the company unprofitable.
The beat reflects the benefit of higher non-interest revenues, nearly stable net interest income and lower provision for loan and lease losses.
Assets Under Management and Assets Under Administration were $32.7 billion and $124.6 billion, respectively, at quarter-end, compared to last year’s $29.7 billion and $101.5 billion.
(Read our full coverage on this earnings report: Marshall & Ilsley Loss Narrows)
Earnings Estimate Revisions – Overview
Following the earnings release, estimates have radically moved up. The estimate revision trends and the magnitude of such revisions justify the strength in the stock. We will now go through the details of the earnings estimate revision to substantiate why an investor would be interested in this stock.
Agreement of Analysts
Looking at the estimates revision trends, it becomes clear that a majority of the analysts have agreed on the positive FY2010 outlook for Marshall & Ilsley earnings. The following table shows that 14 analysts have raised estimates for FY2010 and 2 have moved in the opposite direction over the last 30 days.
Also, for FY2011, 13 analysts have increased the estimates, while 2 downward revisions were witnessed. The higher number of upward estimate revisions for FY2010 and FY2011 indicate a likelihood of upward pressure on the performance of the stock in the near term.
Magnitude of Estimate Revisions
Estimates for FY2010 improved significantly from a loss of $1.07 per share to a loss of 83 cents since the earnings announcement. Also, the estimates for FY2011 moved up from earnings of 9 cents per share to earnings of 17 cents. The significant magnitude of the upward estimate revisions indicates why Marshall & Ilsley is worth adding to an investor’s portfolio.
Earnings Surprise
However, the following table shows that the stock has not been very steady over the last four quarters with respect to earnings surprises. The average remained positive at 5.3%. This implies that Marshall & Ilsley has surpassed the Zacks Consensus Estimate by 5.3% over that period.
Our Take
The ongoing financial turmoil has marred core growth across sectors, and financial services did not go unscathed. Non-performing loans, declining credit quality in a lean job market and constant fluctuations in the financial markets have led to a substantial loss of earnings for Marshall & Ilsley as well, compared to historical levels.
However, the company has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction. We believe that as the economy enters a more favorable environment, Marshall & Ilsley with a satisfactory net interest margin, a strong capital base and ample liquidity will be able to meet the fund requirements of its customers.
The estimate revision trends, magnitude of revising the estimates and lower number of downward estimate revisions clearly portray the potential for significant upward pressure on the stock over the near term.
However, Marshall & Ilsley shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation.
Considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “MI”
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