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Trading to Aid Morgan Stanley (MS) Q1 Earnings, IB to Hurt
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Morgan Stanley’s (MS - Free Report) first-quarter 2022 results, slated to be announced on Apr 14, are expected to benefit from surprisingly solid trading performance. Unlike the last few quarters, wherein market volatility and client activity were gradually normalizing, the overall trading business in the first quarter was a bright spot. Thus, Morgan Stanley’s trading revenues (a major revenue component) are likely to have offered support to its overall performance.
The year began with the expectations of trading volumes declining to levels seen during the pre-pandemic period after an extraordinary performance during the past two years. Nonetheless, the ongoing Russia-Ukraine conflict and prospects of multiple and bigger interest rate hikes by the Federal Reserve to control raging inflation numbers led to a rise in client activity and trading volume in March.
These developments have led to a heightened level of volatility in both equity markets and bond trading. Hence, Morgan Stanley is likely to have witnessed a decent improvement in trading revenues in the quarter.
Other Factors at Play
Advisory income & Underwriting fees: After an extremely robust performance for almost two years, deal-making came to a grinding halt in March. The ongoing Russia-Ukraine conflict (leading to choppiness in the equity markets worldwide) and ambiguity over the economic slowdown tied to inflation weighed on business sentiments. Thus, both deal volume and total value witnessed a decline during the first quarter. Nevertheless, Morgan Stanley’s position as one of the leading players in the space is likely to have provided leverage and offered some support to advisory fees.
Given the above-mentioned concerns, equity market performance was disappointing and thus, the IPOs and follow-up equity issuances dried up. On the other hand, bond issuances are likely to have been decent. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt during the March quarter.
The Zacks Consensus Estimate for investment banking fees of $1.56 billion indicates a plunge of 39.5% from the prior quarter’s reported number.
Net interest income (NII): The overall loan demand witnessed a decent improvement in the first quarter, as the demand for commercial and industrial loans, real estate loans and consumer loans accelerated amid solid economic growth. Also, as the Fed hiked the interest rates by 25 basis points in mid-March, this is likely to have had some positive impact on Morgan Stanley’s net interest margin (NIM) and NII.
However, the first quarter is usually slow for loan originations, which along with the flattening of the yield curve (the difference between short and long-term interest rates) and fewer days in the quarter, might have hampered NII growth.
Expenses: Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have been a major support in the March quarter. As the company continues to invest in franchise, overall costs are anticipated to have flared up.
What Our Quantitative Model Predicts
Our proven model does not predict an earnings beat for Morgan Stanley this time around. This is because it doesn’t 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 -2.89%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for first-quarter earnings has moved 7.7% lower to $1.69 over the past seven days. The estimate shows a 23.9% decline from the year-ago reported number. The consensus estimate for sales is pegged at $14.03 billion, which indicates a year-over-year fall of 10.8%.
Banks to Consider
Here are a few 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 First Republic Bank is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report first-quarter 2022 results on Apr 13.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved slightly upward.
STT’s quarterly earnings estimates have moved 2.1% upward over the past month.
Commerce Bancshares (CBSH - Free Report) is slated to announce first-quarter 2022 results on Apr 19. The company currently carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +6.01%.
CBSH’s earnings estimates for the to-be-reported quarter have moved 2.3% north over the 30 days.
Image: Bigstock
Trading to Aid Morgan Stanley (MS) Q1 Earnings, IB to Hurt
Morgan Stanley’s (MS - Free Report) first-quarter 2022 results, slated to be announced on Apr 14, are expected to benefit from surprisingly solid trading performance. Unlike the last few quarters, wherein market volatility and client activity were gradually normalizing, the overall trading business in the first quarter was a bright spot. Thus, Morgan Stanley’s trading revenues (a major revenue component) are likely to have offered support to its overall performance.
The year began with the expectations of trading volumes declining to levels seen during the pre-pandemic period after an extraordinary performance during the past two years. Nonetheless, the ongoing Russia-Ukraine conflict and prospects of multiple and bigger interest rate hikes by the Federal Reserve to control raging inflation numbers led to a rise in client activity and trading volume in March.
These developments have led to a heightened level of volatility in both equity markets and bond trading. Hence, Morgan Stanley is likely to have witnessed a decent improvement in trading revenues in the quarter.
Other Factors at Play
Advisory income & Underwriting fees: After an extremely robust performance for almost two years, deal-making came to a grinding halt in March. The ongoing Russia-Ukraine conflict (leading to choppiness in the equity markets worldwide) and ambiguity over the economic slowdown tied to inflation weighed on business sentiments. Thus, both deal volume and total value witnessed a decline during the first quarter. Nevertheless, Morgan Stanley’s position as one of the leading players in the space is likely to have provided leverage and offered some support to advisory fees.
Given the above-mentioned concerns, equity market performance was disappointing and thus, the IPOs and follow-up equity issuances dried up. On the other hand, bond issuances are likely to have been decent. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt during the March quarter.
The Zacks Consensus Estimate for investment banking fees of $1.56 billion indicates a plunge of 39.5% from the prior quarter’s reported number.
Net interest income (NII): The overall loan demand witnessed a decent improvement in the first quarter, as the demand for commercial and industrial loans, real estate loans and consumer loans accelerated amid solid economic growth. Also, as the Fed hiked the interest rates by 25 basis points in mid-March, this is likely to have had some positive impact on Morgan Stanley’s net interest margin (NIM) and NII.
However, the first quarter is usually slow for loan originations, which along with the flattening of the yield curve (the difference between short and long-term interest rates) and fewer days in the quarter, might have hampered NII growth.
Expenses: Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have been a major support in the March quarter. As the company continues to invest in franchise, overall costs are anticipated to have flared up.
What Our Quantitative Model Predicts
Our proven model does not predict an earnings beat for Morgan Stanley this time around. This is because it doesn’t 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 -2.89%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
The Zacks Consensus Estimate for first-quarter earnings has moved 7.7% lower to $1.69 over the past seven days. The estimate shows a 23.9% decline from the year-ago reported number. The consensus estimate for sales is pegged at $14.03 billion, which indicates a year-over-year fall of 10.8%.
Banks to Consider
Here are a few 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 First Republic Bank is +0.59% and it carries a Zacks Rank #3, at present. The company is slated to report first-quarter 2022 results on Apr 13.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved slightly upward.
State Street (STT - Free Report) is scheduled to release first-quarter 2022 earnings on Apr 14. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.97%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
STT’s quarterly earnings estimates have moved 2.1% upward over the past month.
Commerce Bancshares (CBSH - Free Report) is slated to announce first-quarter 2022 results on Apr 19. The company currently carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +6.01%.
CBSH’s earnings estimates for the to-be-reported quarter have moved 2.3% north over the 30 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.