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Trading, Underwriting to Aid Morgan Stanley (MS) Q3 Earnings
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Morgan Stanley’s (MS - Free Report) third-quarter 2020 results, slated to be announced on Oct 15, are likely to get support from continued market volatility along with higher client activities. So, trading income (one of the major revenue components for the company) is expected to have improved in the quarter, thus, supporting overall performance to some extent.
Similar to the first six months of 2020, the pandemic along with concerns surrounding its impact on the economy weighed on investor sentiments during the third quarter. Nonetheless, support from government’s stimulus package and the Federal Reserve’s efforts to support the economy were on the positive side. Therefore, Morgan Stanley’s equity and fixed income markets revenues are expected to have improved.
At an investors’ conference in mid-September, Morgan Stanley’s CFO, Jonathan Pruzan, provided trading guidance for the third quarter. Pruzan said that despite good activity levels in August as well as “no real slowdown” witnessed, the performance of its sales and trading business will not be as great in the quarter as it was in the second quarter.
Pruzan stated, “From an Institutional Securities Group (ISG) perspective, we’re not going to have as good a quarter as we did in the second quarter, but I would say it’s sort of better than a typical summer quarter.”
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.07 billion for the third quarter, which suggests a rise of 3.9% from the year-ago reported number. Also, the consensus estimate for fixed income trading revenues of $1.56 billion indicates an increase of 8.7%.
The consensus estimate for trading revenues, which is pegged at $3.59 billion, suggests growth of 3.2% from the year-ago figure.
Other Major Factors to Impact Q3 Results
Underwriting fees: Amid near-zero interest rates and the Federal Reserve’s bond purchase program, which commenced on Mar 23, bond issuance volumes were solid in the quarter as companies took this as an opportunity to bolster their balance sheets. This is likely to have supported Morgan Stanley’s debt underwriting fees, which account for more than 50% of total underwriting fees.
Further, IPO activities bounced back, with the third quarter being one of the busiest since 2000. Also, as companies continued to build liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. These are likely to have aided equity underwriting revenues in the to-be-reported quarter.
The consensus estimate for fixed income underwriting fees is pegged at $495 million, suggesting a decline of 15.2% from the prior year. The Zacks Consensus Estimate for equity underwriting fees of $551 million indicates a year-over-year jump of 37.4%.
Thus, the consensus estimate for total underwriting fees of $1.05 billion indicates a 6.3% year-over-year rise.
Advisory income: Deal making rebounded in the third quarter as economic and business activities gradually resumed. During the quarter, dealmakers revisited transactions that were on hold as coronavirus wreaked havoc across the world. Hence, Morgan Stanley’s advisory fees are likely to have been positively impacted.
The consensus estimate for advisory fees is pegged at $348 million, suggesting a plunge of 36.7% from the year-ago reported number.
Net interest income (NII): With economic slowdown and the pandemic-related scare, demand for loans was soft during the third quarter, while real estate loan portfolio offered some support. This, along with the near-zero interest rates, is likely to have hurt Morgan Stanley’s net interest margin and NII for the quarter.
At the conference, Pruzan stated that the Wealth Management segment’s NII is anticipated to “drift down a little bit” in the third quarter because the second quarter benefited from increased LIBOR rates as well as spreads.
Expenses: Expense reduction, which has long been the main strategy of the company to remain profitable, is not likely to have been a major support in the quarter. As it continues to make investments in franchise, overall costs are likely to have remained elevated in the to-be-reported quarter.
Also, revenue and volume-related expenses might have increased during the quarter.
What Our Quantitative Model Predicts
Our proven model shows that Morgan Stanley has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Morgan Stanley is +3.81%.
Zacks Rank: The company currently carries a Zacks Rank #3.
For the third quarter, the Zacks Consensus Estimate for earnings has moved 6.8% upward to $1.26 over the past seven days. The estimated figure suggests a 4.1% rise from the year-ago reported number. Also, the consensus estimate for sales of $10.3 billion indicates a rise of 2.7%.
On Oct 8, Morgan Stanley announced a deal to acquire Boston, MA-based Eaton Vance Corp (EV - Free Report) for an equity value of about $7 billion. The stock-cum-cash deal, which still awaits certain customary approvals, is expected to close in the second quarter of 2021. With the acquisition, the company aims to grab the market opportunities and scale the client base higher, striking a balance between institutional and retail client.
On Oct 2, Morgan Stanley closed the acquisition of E*TRADE Financial in an all-stock deal worth $13 billion and now holds $3.3 trillion in assets. The deal, announced this February, is likely to position Morgan Stanley as a leader in the Wealth Management industry across all channels and segments, with significant increase in the scale and breadth of its franchise.
Other Stocks Worth a Look
Here are a few other major global bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Goldman Sachs (GS - Free Report) is +8.36% and it carries a Zacks Rank of 3 at present. The company is slated to report quarterly numbers on Oct 14.
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Image: Bigstock
Trading, Underwriting to Aid Morgan Stanley (MS) Q3 Earnings
Morgan Stanley’s (MS - Free Report) third-quarter 2020 results, slated to be announced on Oct 15, are likely to get support from continued market volatility along with higher client activities. So, trading income (one of the major revenue components for the company) is expected to have improved in the quarter, thus, supporting overall performance to some extent.
Similar to the first six months of 2020, the pandemic along with concerns surrounding its impact on the economy weighed on investor sentiments during the third quarter. Nonetheless, support from government’s stimulus package and the Federal Reserve’s efforts to support the economy were on the positive side. Therefore, Morgan Stanley’s equity and fixed income markets revenues are expected to have improved.
At an investors’ conference in mid-September, Morgan Stanley’s CFO, Jonathan Pruzan, provided trading guidance for the third quarter. Pruzan said that despite good activity levels in August as well as “no real slowdown” witnessed, the performance of its sales and trading business will not be as great in the quarter as it was in the second quarter.
Pruzan stated, “From an Institutional Securities Group (ISG) perspective, we’re not going to have as good a quarter as we did in the second quarter, but I would say it’s sort of better than a typical summer quarter.”
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.07 billion for the third quarter, which suggests a rise of 3.9% from the year-ago reported number. Also, the consensus estimate for fixed income trading revenues of $1.56 billion indicates an increase of 8.7%.
The consensus estimate for trading revenues, which is pegged at $3.59 billion, suggests growth of 3.2% from the year-ago figure.
Other Major Factors to Impact Q3 Results
Underwriting fees: Amid near-zero interest rates and the Federal Reserve’s bond purchase program, which commenced on Mar 23, bond issuance volumes were solid in the quarter as companies took this as an opportunity to bolster their balance sheets. This is likely to have supported Morgan Stanley’s debt underwriting fees, which account for more than 50% of total underwriting fees.
Further, IPO activities bounced back, with the third quarter being one of the busiest since 2000. Also, as companies continued to build liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. These are likely to have aided equity underwriting revenues in the to-be-reported quarter.
The consensus estimate for fixed income underwriting fees is pegged at $495 million, suggesting a decline of 15.2% from the prior year. The Zacks Consensus Estimate for equity underwriting fees of $551 million indicates a year-over-year jump of 37.4%.
Thus, the consensus estimate for total underwriting fees of $1.05 billion indicates a 6.3% year-over-year rise.
Advisory income: Deal making rebounded in the third quarter as economic and business activities gradually resumed. During the quarter, dealmakers revisited transactions that were on hold as coronavirus wreaked havoc across the world. Hence, Morgan Stanley’s advisory fees are likely to have been positively impacted.
The consensus estimate for advisory fees is pegged at $348 million, suggesting a plunge of 36.7% from the year-ago reported number.
Net interest income (NII): With economic slowdown and the pandemic-related scare, demand for loans was soft during the third quarter, while real estate loan portfolio offered some support. This, along with the near-zero interest rates, is likely to have hurt Morgan Stanley’s net interest margin and NII for the quarter.
At the conference, Pruzan stated that the Wealth Management segment’s NII is anticipated to “drift down a little bit” in the third quarter because the second quarter benefited from increased LIBOR rates as well as spreads.
Expenses: Expense reduction, which has long been the main strategy of the company to remain profitable, is not likely to have been a major support in the quarter. As it continues to make investments in franchise, overall costs are likely to have remained elevated in the to-be-reported quarter.
Also, revenue and volume-related expenses might have increased during the quarter.
What Our Quantitative Model Predicts
Our proven model shows that Morgan Stanley has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Morgan Stanley is +3.81%.
Zacks Rank: The company currently carries a Zacks Rank #3.
For the third quarter, the Zacks Consensus Estimate for earnings has moved 6.8% upward to $1.26 over the past seven days. The estimated figure suggests a 4.1% rise from the year-ago reported number. Also, the consensus estimate for sales of $10.3 billion indicates a rise of 2.7%.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
Subsequent Major Developments
On Oct 8, Morgan Stanley announced a deal to acquire Boston, MA-based Eaton Vance Corp (EV - Free Report) for an equity value of about $7 billion. The stock-cum-cash deal, which still awaits certain customary approvals, is expected to close in the second quarter of 2021. With the acquisition, the company aims to grab the market opportunities and scale the client base higher, striking a balance between institutional and retail client.
On Oct 2, Morgan Stanley closed the acquisition of E*TRADE Financial in an all-stock deal worth $13 billion and now holds $3.3 trillion in assets. The deal, announced this February, is likely to position Morgan Stanley as a leader in the Wealth Management industry across all channels and segments, with significant increase in the scale and breadth of its franchise.
Other Stocks Worth a Look
Here are a few other major global bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Bank of America (BAC - Free Report) is scheduled to release earnings figures on Oct 14. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +3.93%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Goldman Sachs (GS - Free Report) is +8.36% and it carries a Zacks Rank of 3 at present. The company is slated to report quarterly numbers on Oct 14.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>