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Trading, Higher Rates to Aid Morgan Stanley's (MS) Q1 Earnings
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The performance of Morgan Stanley’s (MS - Free Report) trading business (constituting a significant portion of its top line) is expected to have been robust in the first quarter of 2023. Hence, the company’s first-quarter results, scheduled to be announced on Apr 19 before the opening bell, are expected to reflect the benefits of strong trading performance.
Similar to 2022, market volatility and client activity have been robust in the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply-chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation, led to ambiguity among investors.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Therefore, Morgan Stanley is likely to have recorded an improvement in trading revenues this time around.
The Zacks Consensus Estimate for first-quarter equity trading revenues is pegged at $3.13 billion. The estimate figure suggests a rise of 44% from the previous quarter’s reported number. The consensus estimate for fixed-income trading revenues of $2.23 billion indicates a sequential increase of 57.5%. Our estimates for equity trading revenues and fixed-income trading revenues are $3 billion and $2.04 billion, respectively.
Other Key Factors and Estimates for Q1
Net Interest Income (NII): Lending activities have continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, the demand for real estate loans and consumer loans improved in January and February, while commercial and industrial loans witnessed muted demand. However, following the bank runs in the first week of March, the demand for loans decelerated as recessionary fear gained ground.
Nevertheless, the Federal Reserve continued with the tightening of its monetary policy (though the pace has slowed down), raising rates by another 50 basis points in the quarter. The policy rate reached 4.75-5%, the highest since 2008. This is likely to have had a favorable impact on MS’s net interest margin (NIM) and NII. However, the inversion of the yield curve in the March-end quarter is expected to have weighed on NIM to some extent.
The consensus estimate for NII is pegged at $2.47 billion, suggesting an increase of 6.6% on a sequential basis. Our estimate for NII is $2.42 billion.
Investment Banking (IB) Income: Like 2022, global deal-making continued to shrink in the first quarter. A host of factors, such as geopolitical tensions, inflation, rising interest rates and fears of a global recession, acted as headwinds for M&As.
Thus, both deal volume and total value numbers crashed in the quarter. While Morgan Stanley’s position as one of the leading players in the space is likely to have provided some leverage, overall growth in advisory fees is not expected to have been that impressive in the quarter.
The consensus estimate for advisory fees is pegged at $804 million, suggesting a rise of 13.1% from the prior quarter’s reported number. Our estimate for the same is $803.8 million.
For the same reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt in the quarter under review. Nevertheless, compared with the previous quarter’s performance, underwriting revenues are not expected to have declined much.
The consensus estimate for fixed-income underwriting fees is pegged at $362 million, suggesting a rise of 15.3% sequentially. The Zacks Consensus Estimate for equity underwriting fees of $217 million indicates a decline of 4.4%. The consensus estimate for total underwriting fees of $579 million implies a rise of 7%.
Our estimate for fixed-income underwriting fees is $362.2 million, while that for equity underwriting fees is $217 million.
Overall, the Zacks Consensus Estimate for IB income of $1.24 billion indicates a decline of 1% from the previous quarter’s reported figure. Our estimate for IB income is $1.39 billion.
Expenses: Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have provided major support in the March-end quarter. As the company has been investing in franchises, overall costs are anticipated to have flared.
What Our Quantitative Model Predicts
According to our proven model, the chances of Morgan Stanley beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t have the right combination of the two key ingredients — 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 -1.35%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for the company’s first-quarter earnings has moved 1.2% lower to $1.70 over the past seven days. The estimate suggests a 17.5% decline from the year-ago reported number. Our estimate for earnings is $1.69 per share.
The consensus estimate for sales is pegged at $14.04 billion, which indicates a year-over-year fall of 5.2%. Our estimate for total revenues is $13.47 billion.
A couple of 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, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.58% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
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Trading, Higher Rates to Aid Morgan Stanley's (MS) Q1 Earnings
The performance of Morgan Stanley’s (MS - Free Report) trading business (constituting a significant portion of its top line) is expected to have been robust in the first quarter of 2023. Hence, the company’s first-quarter results, scheduled to be announced on Apr 19 before the opening bell, are expected to reflect the benefits of strong trading performance.
Similar to 2022, market volatility and client activity have been robust in the first quarter. Several factors, including the ongoing Russia-Ukraine conflict, continued supply-chain disruptions, bank runs, fears of an economic downturn/recession and the central banks’ hawkish monetary policy stance to stem out “sticky” inflation, led to ambiguity among investors.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Therefore, Morgan Stanley is likely to have recorded an improvement in trading revenues this time around.
The Zacks Consensus Estimate for first-quarter equity trading revenues is pegged at $3.13 billion. The estimate figure suggests a rise of 44% from the previous quarter’s reported number. The consensus estimate for fixed-income trading revenues of $2.23 billion indicates a sequential increase of 57.5%. Our estimates for equity trading revenues and fixed-income trading revenues are $3 billion and $2.04 billion, respectively.
Other Key Factors and Estimates for Q1
Net Interest Income (NII): Lending activities have continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, the demand for real estate loans and consumer loans improved in January and February, while commercial and industrial loans witnessed muted demand. However, following the bank runs in the first week of March, the demand for loans decelerated as recessionary fear gained ground.
Nevertheless, the Federal Reserve continued with the tightening of its monetary policy (though the pace has slowed down), raising rates by another 50 basis points in the quarter. The policy rate reached 4.75-5%, the highest since 2008. This is likely to have had a favorable impact on MS’s net interest margin (NIM) and NII. However, the inversion of the yield curve in the March-end quarter is expected to have weighed on NIM to some extent.
The consensus estimate for NII is pegged at $2.47 billion, suggesting an increase of 6.6% on a sequential basis. Our estimate for NII is $2.42 billion.
Investment Banking (IB) Income: Like 2022, global deal-making continued to shrink in the first quarter. A host of factors, such as geopolitical tensions, inflation, rising interest rates and fears of a global recession, acted as headwinds for M&As.
Thus, both deal volume and total value numbers crashed in the quarter. While Morgan Stanley’s position as one of the leading players in the space is likely to have provided some leverage, overall growth in advisory fees is not expected to have been that impressive in the quarter.
The consensus estimate for advisory fees is pegged at $804 million, suggesting a rise of 13.1% from the prior quarter’s reported number. Our estimate for the same is $803.8 million.
For the same reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volume witnessed a decline, too, as investors turned pessimistic. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt in the quarter under review. Nevertheless, compared with the previous quarter’s performance, underwriting revenues are not expected to have declined much.
The consensus estimate for fixed-income underwriting fees is pegged at $362 million, suggesting a rise of 15.3% sequentially. The Zacks Consensus Estimate for equity underwriting fees of $217 million indicates a decline of 4.4%. The consensus estimate for total underwriting fees of $579 million implies a rise of 7%.
Our estimate for fixed-income underwriting fees is $362.2 million, while that for equity underwriting fees is $217 million.
Overall, the Zacks Consensus Estimate for IB income of $1.24 billion indicates a decline of 1% from the previous quarter’s reported figure. Our estimate for IB income is $1.39 billion.
Expenses: Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have provided major support in the March-end quarter. As the company has been investing in franchises, overall costs are anticipated to have flared.
What Our Quantitative Model Predicts
According to our proven model, the chances of Morgan Stanley beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t have the right combination of the two key ingredients — 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 -1.35%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for the company’s first-quarter earnings has moved 1.2% lower to $1.70 over the past seven days. The estimate suggests a 17.5% decline from the year-ago reported number. Our estimate for earnings is $1.69 per share.
The consensus estimate for sales is pegged at $14.04 billion, which indicates a year-over-year fall of 5.2%. Our estimate for total revenues is $13.47 billion.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
Stocks to Consider
A couple of 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, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.58% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
BankUnited is expected to release first-quarter 2023 earnings on Apr 25. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +4.84%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.