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Solid Trading Performance to Aid Morgan Stanley (MS) Q1 Earnings
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Morgan Stanley’s (MS - Free Report) first-quarter 2021 results, scheduled to be announced on Apr 16, are expected to reflect decent trading performance. The company’s trading revenues are likely to have gotten support from the continued rise in market volatility along with higher client activities. Hence, improved trading income (a major revenue component for the company) is expected to have aided overall performance in the to-be-reported quarter.
Similar to 2020, first-quarter 2021 witnessed a significant rise in market volatility, driven by the $1.9-trillion stimulus package, relatively low coronavirus infection cases, a rise in vaccine coverage, expectations of a faster-than-expected economic rebound and concerns over inflation. Therefore, driven by the rise in volatility, Morgan Stanley’s equity as well as fixed-income markets revenues are expected to have been positively impacted.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.68 billion for the first quarter, which suggests a rise of 7.4% from the previous quarter’s reported number. Also, the consensus estimate for fixed-income trading revenues of $2.18 billion indicates an increase of 31.1%.
The consensus estimate for total trading revenues, which is pegged at $4.76 billion, suggests growth of 12.8% from the previous quarter’s reported figure.
Other Key Factors Likely to Have Influenced Q1 Performance
Underwriting fees: Amid the near-zero interest rate environment and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes continued to remain strong in the first quarter as companies took this as an opportunity to bolster their balance sheets. This is likely to have aided Morgan Stanley’s debt underwriting fees, which account for more than 50% of its total underwriting fees.
Further, continuing with the momentum, which started in the second half of last year, the IPO market has remained active in the to-be-reported quarter. Also, as companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. These are likely to have positively impacted equity underwriting revenues in the to-be-reported quarter.
The consensus estimate for fixed-income underwriting fees is pegged at $486 million, suggesting a rise of 2.3% from the prior quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fees of $970 million indicates a fall of 3% sequentially.
The consensus estimate for total underwriting fees of $1.46 billion indicates a sequential fall of 36.8%.
Advisory income: Similar to the second half of 2020, deal-making continued at a fast pace in first-quarter 2021 on the back of the gradual global roll-out of the COVID-19 vaccines, a brighter macroeconomic outlook and lower interest rates. Though the deal volume didn’t show much improvement, the total value of pending/completed transactions rose drastically.
In fact, Morgan Stanley’s position as one of the leading players in this space is likely to have provided leverage. Thus, the company’s advisory fee is likely to have been positively impacted in the to-be-reported quarter.
The consensus estimate for advisory fees is pegged at $644 million, suggesting a plunge of 22.1% from the previous quarter’s reported number.
Net interest income (NII): Similar to 2020, the overall demand for loans remained soft in the first quarter, although commercial real estate loan and consumer loan portfolios offered some support. The primary reason for low demand for loans continues to be the slow resumption of business activities.
Thus, muted loan growth along with the continued low interest rate environment is likely to have hurt Morgan Stanley’s NII and net interest margin in the quarter. Nevertheless, the steepening of the yield curve (the difference between the short and long-term interest rates) is expected to have offered some support.
Expenses: Expense reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is not likely to have been a major support in the first quarter. As the company completed the acquisition of Eaton Vance in March and continues to invest in franchise, overall costs are likely to have been elevated in the to-be-reported quarter.
What Our Quantitative Model Predicts
According to our proven model, it cannot be conclusively predicted whether Morgan Stanley will be able to beat the Zacks Consensus Estimate this time. This is because it does not have 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy). While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.
Notably, the Zacks Consensus Estimate for the company’s first-quarter earnings has moved 3% upward to $1.72 over the past seven days. The estimate suggests a 73.7% rise from the year-ago reported number. Also, the consensus estimate for sales is pegged at $13.81 billion, which indicates a year-over-year rise of 45.5%.
Stocks Worth a Look
Here are a few finance 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:
Citigroup (C - Free Report) is slated to report quarterly results on Apr 15. The company currently has an Earnings ESP of +3.14% and a Zacks Rank of 3.
The Earnings ESP for Invesco (IVZ - Free Report) is +6.31% and it carries a Zacks Rank of 2 at present. The company is slated to report quarterly numbers on Apr 27.
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The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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Solid Trading Performance to Aid Morgan Stanley (MS) Q1 Earnings
Morgan Stanley’s (MS - Free Report) first-quarter 2021 results, scheduled to be announced on Apr 16, are expected to reflect decent trading performance. The company’s trading revenues are likely to have gotten support from the continued rise in market volatility along with higher client activities. Hence, improved trading income (a major revenue component for the company) is expected to have aided overall performance in the to-be-reported quarter.
Similar to 2020, first-quarter 2021 witnessed a significant rise in market volatility, driven by the $1.9-trillion stimulus package, relatively low coronavirus infection cases, a rise in vaccine coverage, expectations of a faster-than-expected economic rebound and concerns over inflation. Therefore, driven by the rise in volatility, Morgan Stanley’s equity as well as fixed-income markets revenues are expected to have been positively impacted.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.68 billion for the first quarter, which suggests a rise of 7.4% from the previous quarter’s reported number. Also, the consensus estimate for fixed-income trading revenues of $2.18 billion indicates an increase of 31.1%.
The consensus estimate for total trading revenues, which is pegged at $4.76 billion, suggests growth of 12.8% from the previous quarter’s reported figure.
Other Key Factors Likely to Have Influenced Q1 Performance
Underwriting fees: Amid the near-zero interest rate environment and the Federal Reserve’s steady bond purchase program (that began in March 2020), bond issuance volumes continued to remain strong in the first quarter as companies took this as an opportunity to bolster their balance sheets. This is likely to have aided Morgan Stanley’s debt underwriting fees, which account for more than 50% of its total underwriting fees.
Further, continuing with the momentum, which started in the second half of last year, the IPO market has remained active in the to-be-reported quarter. Also, as companies kept building liquidity to tide over the pandemic-induced crisis, there was a rise in follow-up equity issuances. These are likely to have positively impacted equity underwriting revenues in the to-be-reported quarter.
The consensus estimate for fixed-income underwriting fees is pegged at $486 million, suggesting a rise of 2.3% from the prior quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fees of $970 million indicates a fall of 3% sequentially.
The consensus estimate for total underwriting fees of $1.46 billion indicates a sequential fall of 36.8%.
Advisory income: Similar to the second half of 2020, deal-making continued at a fast pace in first-quarter 2021 on the back of the gradual global roll-out of the COVID-19 vaccines, a brighter macroeconomic outlook and lower interest rates. Though the deal volume didn’t show much improvement, the total value of pending/completed transactions rose drastically.
In fact, Morgan Stanley’s position as one of the leading players in this space is likely to have provided leverage. Thus, the company’s advisory fee is likely to have been positively impacted in the to-be-reported quarter.
The consensus estimate for advisory fees is pegged at $644 million, suggesting a plunge of 22.1% from the previous quarter’s reported number.
Net interest income (NII): Similar to 2020, the overall demand for loans remained soft in the first quarter, although commercial real estate loan and consumer loan portfolios offered some support. The primary reason for low demand for loans continues to be the slow resumption of business activities.
Thus, muted loan growth along with the continued low interest rate environment is likely to have hurt Morgan Stanley’s NII and net interest margin in the quarter. Nevertheless, the steepening of the yield curve (the difference between the short and long-term interest rates) is expected to have offered some support.
Expenses: Expense reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is not likely to have been a major support in the first quarter. As the company completed the acquisition of Eaton Vance in March and continues to invest in franchise, overall costs are likely to have been elevated in the to-be-reported quarter.
What Our Quantitative Model Predicts
According to our proven model, it cannot be conclusively predicted whether Morgan Stanley will be able to beat the Zacks Consensus Estimate this time. This is because it does not have 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 0.00%.
Zacks Rank: The company currently carries a Zacks Rank #2 (Buy). While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
Notably, the Zacks Consensus Estimate for the company’s first-quarter earnings has moved 3% upward to $1.72 over the past seven days. The estimate suggests a 73.7% rise from the year-ago reported number. Also, the consensus estimate for sales is pegged at $13.81 billion, which indicates a year-over-year rise of 45.5%.
Stocks Worth a Look
Here are a few finance 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:
Citigroup (C - Free Report) is slated to report quarterly results on Apr 15. The company currently has an Earnings ESP of +3.14% and a Zacks Rank of 3.
BankUnited (BKU - Free Report) is scheduled to release earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.64%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Invesco (IVZ - Free Report) is +6.31% and it carries a Zacks Rank of 2 at present. The company is slated to report quarterly numbers on Apr 27.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>