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Impressive Trading to Aid Morgan Stanley (MS) in Q1 Earnings
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Morgan Stanley’s (MS - Free Report) first-quarter 2020 results, slated to be announced on Apr 16, are likely to get support from the unexpected rise in market volatility along with higher client activities. Therefore, 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.
Year 2020 began on a positive note but concerns surrounding the impact of coronavirus on the economy resulted in a roller coaster ride, with all the major indexes — the S&P 500, Dow Jones and Nasdaq — swinging from new highs to record lows. Owing to the significant volatility, investors moved toward safer options like Treasury bonds and commodities like gold. Hence, Morgan Stanley’s equity and fixed income markets revenues are expected to have improved in the to-be-reported quarter.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.18 billion for the first quarter, which suggests a rise of 13.3% from the prior quarter’s reported figure. Also, the consensus estimate for fixed income trading revenues of $1.71 billion indicates a jump of 34.5%.
The consensus estimate for trading revenues, which is pegged at $3.83 billion, suggests growth of 19.8% sequentially.
Now, let’s take a look at the other factors that are expected to have influenced Morgan Stanley’s first-quarter performance:
Underwriting fees may not offer support: Decent equity market performance in the first two months of the year and the central banks’ accommodative stance are likely to have driven corporates to issue equities globally. However, following the virus outbreak, significant volatility in the equity markets dried up issuances. IPO activities also followed a similar trend. Thus, Morgan Stanley’s equity underwriting fees are expected to have been negatively impacted in the quarter. The Zacks Consensus Estimate for equity underwriting fees of $387 million indicates an 8.3% sequential decline.
During the quarter, bond issuance volumes were solid, while debt issuances were muted, owing to soft loan demand. Hence, growth in Morgan Stanley’s debt underwriting fees (accounting for more than 50% of total underwriting fees) is expected to have been muted. The consensus estimate for debt underwriting fees is pegged at $456 million, suggesting a decline of 8.8% from the previous quarter.
The consensus estimate for total underwriting fees of $759 million indicates a 17.7% decline sequentially.
Advisory income likely to decline: Due to the coronavirus-induced economic slowdown, overall business activities got hampered in the quarter. Hence, the number of announced M&As declined. Thus, as global M&A activity remained weak during the quarter, Morgan Stanley’s advisory fees are likely to have been adversely impacted.
The consensus estimate for advisory fees is pegged at $490 million, suggesting a decrease of 25.1% from the prior quarter.
Net interest income (NII) growth may be hurt: The lending backdrop was strong in the first two months of the to-be-reported quarter. But the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a halt. Nevertheless, with considerable support from commercial and industrial loan growth, the overall lending scenario was decent during the first quarter.
Despite decent loan growth, Morgan Stanley’s NII is likely to have been hurt because of lower rates. In fact, the Federal Reserve cut interest rates to near zero in March to support the U.S. economy from the coronavirus-induced slowdown, which is expected to have hampered net interest yield.
Expenses may witness a rise: 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 the company continues to make investments in franchise, overall costs are likely to have remained elevated in the to-be-reported quarter.
Here is what our quantitative model predicts:
Our proven model shows that Morgan Stanley 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 #4 (Sell).
The Zacks Consensus Estimate for earnings of Morgan Stanley is pegged at $1.07 per share for the first quarter, which suggests a year-over-year decline of 19.6%. The consensus estimate for sales of $9.08 billion indicates a decline of 11.7%.
In February, Morgan Stanley entered into an all-stock deal to acquire E*TRADE Financial for $13 billion. The transaction is anticipated to close in the final quarter of 2020, post which, Morgan Stanley will be positioned as a leader in the Wealth Management industry across all channels and wealth segments.
Post combination, significant cost savings worth $400 million is expected with the optimization of technology infrastructure and shared corporate services along with funding synergies of $150 million from E*TRADE’s around $56 billion of deposits. Per Morgan Stanley, the acquisition is likely to be accretive once fully phased-in estimated cost and funding synergies are realized.
Stocks Worth a Look
Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.
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Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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Impressive Trading to Aid Morgan Stanley (MS) in Q1 Earnings
Morgan Stanley’s (MS - Free Report) first-quarter 2020 results, slated to be announced on Apr 16, are likely to get support from the unexpected rise in market volatility along with higher client activities. Therefore, 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.
Year 2020 began on a positive note but concerns surrounding the impact of coronavirus on the economy resulted in a roller coaster ride, with all the major indexes — the S&P 500, Dow Jones and Nasdaq — swinging from new highs to record lows. Owing to the significant volatility, investors moved toward safer options like Treasury bonds and commodities like gold. Hence, Morgan Stanley’s equity and fixed income markets revenues are expected to have improved in the to-be-reported quarter.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.18 billion for the first quarter, which suggests a rise of 13.3% from the prior quarter’s reported figure. Also, the consensus estimate for fixed income trading revenues of $1.71 billion indicates a jump of 34.5%.
The consensus estimate for trading revenues, which is pegged at $3.83 billion, suggests growth of 19.8% sequentially.
Now, let’s take a look at the other factors that are expected to have influenced Morgan Stanley’s first-quarter performance:
Underwriting fees may not offer support: Decent equity market performance in the first two months of the year and the central banks’ accommodative stance are likely to have driven corporates to issue equities globally. However, following the virus outbreak, significant volatility in the equity markets dried up issuances. IPO activities also followed a similar trend. Thus, Morgan Stanley’s equity underwriting fees are expected to have been negatively impacted in the quarter. The Zacks Consensus Estimate for equity underwriting fees of $387 million indicates an 8.3% sequential decline.
During the quarter, bond issuance volumes were solid, while debt issuances were muted, owing to soft loan demand. Hence, growth in Morgan Stanley’s debt underwriting fees (accounting for more than 50% of total underwriting fees) is expected to have been muted. The consensus estimate for debt underwriting fees is pegged at $456 million, suggesting a decline of 8.8% from the previous quarter.
The consensus estimate for total underwriting fees of $759 million indicates a 17.7% decline sequentially.
Advisory income likely to decline: Due to the coronavirus-induced economic slowdown, overall business activities got hampered in the quarter. Hence, the number of announced M&As declined. Thus, as global M&A activity remained weak during the quarter, Morgan Stanley’s advisory fees are likely to have been adversely impacted.
The consensus estimate for advisory fees is pegged at $490 million, suggesting a decrease of 25.1% from the prior quarter.
Net interest income (NII) growth may be hurt: The lending backdrop was strong in the first two months of the to-be-reported quarter. But the virus outbreak in March resulted in a drop in loan demand, as business and consumer activities came to a halt. Nevertheless, with considerable support from commercial and industrial loan growth, the overall lending scenario was decent during the first quarter.
Despite decent loan growth, Morgan Stanley’s NII is likely to have been hurt because of lower rates. In fact, the Federal Reserve cut interest rates to near zero in March to support the U.S. economy from the coronavirus-induced slowdown, which is expected to have hampered net interest yield.
Expenses may witness a rise: 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 the company continues to make investments in franchise, overall costs are likely to have remained elevated in the to-be-reported quarter.
Here is what our quantitative model predicts:
Our proven model shows that Morgan Stanley 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 #4 (Sell).
The Zacks Consensus Estimate for earnings of Morgan Stanley is pegged at $1.07 per share for the first quarter, which suggests a year-over-year decline of 19.6%. The consensus estimate for sales of $9.08 billion indicates a decline of 11.7%.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
Major Development During the Quarter
In February, Morgan Stanley entered into an all-stock deal to acquire E*TRADE Financial for $13 billion. The transaction is anticipated to close in the final quarter of 2020, post which, Morgan Stanley will be positioned as a leader in the Wealth Management industry across all channels and wealth segments.
Post combination, significant cost savings worth $400 million is expected with the optimization of technology infrastructure and shared corporate services along with funding synergies of $150 million from E*TRADE’s around $56 billion of deposits. Per Morgan Stanley, the acquisition is likely to be accretive once fully phased-in estimated cost and funding synergies are realized.
Stocks Worth a Look
Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.
BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release quarterly results soon. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for Carolina Financial Corporation is +1.43% and it carries a Zacks Rank of 3 currently. The company is expected to report quarterly numbers in the coming days.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>