MENU

This top broker is tipping an earnings beat for Macquarie Group Ltd (ASX:MQG)

The share price of Macquarie Group Ltd (ASX: MQG) looks well placed to keep outperforming over the next few months as the chance of the investment bank delivering a better-than-expected profit result has just gone up, according to Morgan Stanley.

Shares in Macquarie are up 1.3% at $125.50 against a flat performance by the financial sector and a 0.2% increase in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index in after lunch trade.

The bullish prediction by Morgan Stanley comes after news that Santos Ltd (ASX: STO) agreed to acquire Western Australian Quadrant Energy in a circa $3 billion deal.

Macquarie owns 22% of Quadrant and the broker estimates it will book around a $250 million profit from the transaction.

“This is almost of half of A$580m total gains on sale we have baked for 1H19E. This compares to the ~A$650m HY average gains on sale in FY17 and FY18,” said Morgan Stanley who has an “overweight” recommendation on the stock with a price target of $130 a share.

“This gives us more confidence that 1H19E profit can hit our forecasts and hence exceed consensus expectations. We are looking ~9% y-o-y [year-on-year] 1H19E profit growth and are ~4%pts ahead of consensus.”

While Morgan Stanley might be tipping a better profit number than most other analysts, it doesn’t mean the “Street” has low expectations for the group.

Consensus is forecasting earnings per share growth of around 11% in FY19 and this contrasts with management’s guidance of a flat full year result for the current financial year.

But even Macquarie’s 1QFY19 update is contradicting the guidance as operating group contribution was up on the same time in the last financial year, which Morgan Stanley believes implies a y-o-y growth of over 10%.

On the other hand, no one should be particularly surprised by this given management’s track record of under promising and over delivering.

It’s worth paying a premium for that alone when you compare the track record of other financial/wealth management groups like AMP Limited (ASX: AMP) and Perpetual Limited (ASX: PPT).

Macquarie will release its first half profits in late October. The stock is up 43% over the past 12 months and is on a FY19 consensus price-earnings multiple of under 16 times.

That’s about the average for the ASX 200 index when Macquarie should be trading at a higher valuation, in my opinion.

I suspect Macquarie will be trading at $150 before the year is out.

There are other blue-chip stocks that are well placed to outperform the market too. The experts at the Motley Fool have picked three of their best blue-chip stock ideas for FY19 and you can find out what these stocks are by clicking on the free link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.