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Trading to Support Morgan Stanley (MS) Q2 Earnings, IB to Ail
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Morgan Stanley’s (MS - Free Report) second-quarter 2022 earnings, scheduled to be announced on Jul 14, are expected to have benefited from solid trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust, the overall trading business in the second quarter was a bright spot as well.
The market volatility that started in February-end persisted in the second quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, higher inflation and rising interest rates worldwide resulted in heightened client activities and increased trading volume.
These developments led to extreme volatility in equity markets (with the S&P 500 Index witnessing the worst first-half performance in more than 50 years) and other asset classes, like commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded a substantial improvement in trading revenues this time.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.81 billion. The figure is relatively stable with the previous-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $1.76 billion indicates an increase of 4.8% year over year.
Other Factors at Play
Net interest income (NII): The overall loan demand witnessed a solid improvement in the second quarter, as the demand for commercial and industrial loans, real estate loans and consumer loans accelerated. Also, the Federal Reserve hiked the interest rates by 125 basis points during the quarter. Thus, the policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. This is likely to have had a favorable impact on Morgan Stanley’s net interest margin (NIM) and NII.
Yet, the flattening of the yield curve (the difference between short and long-term interest rates) might have hampered NII growth to some extent.
Management expects loan growth to be $5 billion during the quarter.
Investment banking (IB) income: After an amazing performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value crashed during the second quarter.
However, Morgan Stanley’s position as one of the leading players in the space is likely to have provided leverage and support to advisory fees. The consensus estimate for advisory fees is pegged at $945 million, suggesting a jump of 42.3% on a year-over-year basis.
Given the above-mentioned concerns, equity market performance was disappointing and thus, the IPOs and follow-up equity issuances dried up. Likewise, bond issuances are likely to have been muted too. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt during the quarter under review.
The consensus estimate for fixed-income underwriting fees is pegged at $516 million, suggesting a rise of 19.4% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fee of $772 million indicates a fall of 28%. Thus, the consensus estimate for total underwriting fees of $1.29 billion implies a year-over-year plunge of 25.8%.
Overall, the Zacks Consensus Estimate for IB income of $1.69 billion indicates a decline of 29% from the prior quarter’s reported number.
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 April-June 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 -6.39%.
Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for second-quarter earnings has moved marginally lower to $1.62 over the past seven days. The estimate shows a 14.3% decline from the year-ago reported number. The consensus estimate for sales is pegged at $13.87 billion, which indicates a year-over-year fall of 6%.
Major Banks to Consider
Here are a couple of major 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:
JPM’s quarterly earnings estimates have moved 1.1% upward over the past month.
The Earnings ESP for Truist Financial (TFC - Free Report) is +1.38% and it carries a Zacks Rank #3, at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, TFC’s Zacks Consensus Estimate for quarterly earnings has remained unchanged.
Image: Bigstock
Trading to Support Morgan Stanley (MS) Q2 Earnings, IB to Ail
Morgan Stanley’s (MS - Free Report) second-quarter 2022 earnings, scheduled to be announced on Jul 14, are expected to have benefited from solid trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust, the overall trading business in the second quarter was a bright spot as well.
The market volatility that started in February-end persisted in the second quarter. The Russia-Ukraine conflict continued to disrupt supply chains, leading to global ambiguity. Also, fears of an economic slowdown, higher inflation and rising interest rates worldwide resulted in heightened client activities and increased trading volume.
These developments led to extreme volatility in equity markets (with the S&P 500 Index witnessing the worst first-half performance in more than 50 years) and other asset classes, like commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded a substantial improvement in trading revenues this time.
The Zacks Consensus Estimate for equity trading revenues is pegged at $2.81 billion. The figure is relatively stable with the previous-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $1.76 billion indicates an increase of 4.8% year over year.
Other Factors at Play
Net interest income (NII): The overall loan demand witnessed a solid improvement in the second quarter, as the demand for commercial and industrial loans, real estate loans and consumer loans accelerated. Also, the Federal Reserve hiked the interest rates by 125 basis points during the quarter. Thus, the policy rate reached 1.5-1.75%, the highest level since just before the March 2020 pandemic. This is likely to have had a favorable impact on Morgan Stanley’s net interest margin (NIM) and NII.
Yet, the flattening of the yield curve (the difference between short and long-term interest rates) might have hampered NII growth to some extent.
Management expects loan growth to be $5 billion during the quarter.
Investment banking (IB) income: After an amazing performance for almost two years, deal-making across the globe hit a purple patch. Raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments and plans for expansion through acquisitions. Thus, both deal volume and total value crashed during the second quarter.
However, Morgan Stanley’s position as one of the leading players in the space is likely to have provided leverage and support to advisory fees. The consensus estimate for advisory fees is pegged at $945 million, suggesting a jump of 42.3% on a year-over-year basis.
Given the above-mentioned concerns, equity market performance was disappointing and thus, the IPOs and follow-up equity issuances dried up. Likewise, bond issuances are likely to have been muted too. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt during the quarter under review.
The consensus estimate for fixed-income underwriting fees is pegged at $516 million, suggesting a rise of 19.4% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fee of $772 million indicates a fall of 28%. Thus, the consensus estimate for total underwriting fees of $1.29 billion implies a year-over-year plunge of 25.8%.
Overall, the Zacks Consensus Estimate for IB income of $1.69 billion indicates a decline of 29% from the prior quarter’s reported number.
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 April-June 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 -6.39%.
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 second-quarter earnings has moved marginally lower to $1.62 over the past seven days. The estimate shows a 14.3% decline from the year-ago reported number. The consensus estimate for sales is pegged at $13.87 billion, which indicates a year-over-year fall of 6%.
Major Banks to Consider
Here are a couple of major 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:
JPMorgan (JPM - Free Report) is scheduled to release second-quarter 2022 earnings on Jul 14. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +1.32%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPM’s quarterly earnings estimates have moved 1.1% upward over the past month.
The Earnings ESP for Truist Financial (TFC - Free Report) is +1.38% and it carries a Zacks Rank #3, at present. The company is slated to report second-quarter 2022 results on Jul 19.
Over the past 30 days, TFC’s Zacks Consensus Estimate for quarterly earnings has remained unchanged.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.