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Trading, Higher Rates to Aid Morgan Stanley's (MS) Q3 Earnings
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Morgan Stanley’s (MS - Free Report) third-quarter 2022 results, scheduled to be announced on Oct 14, are expected to reflect the benefits of robust trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust, the overall trading business in the to-be-reported quarter was a bright spot.
After witnessing gradual normalization in the second half of 2021, trading activities have turned around since the beginning of this year. Certain developments, including Russia’s invasion of Ukraine and the continued supply-chain disruptions, have led to uncertainty among investors.
Also, fears of a severe economic slowdown amid the ultra-aggressive stance of the central banks across the globe to control inflation drove client activity and trading volumes in the third quarter.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded an improvement in trading revenues this time.
The Zacks Consensus Estimate for third-quarter equity trading revenues is pegged at $2.57 billion. The figure suggests a decline of 10.8% from the previous-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $1.73 billion indicates a year-over-year increase of 5.5%. Our estimate for total trading income is $3.06 billion, which indicates a year-over-year rise of 7.1%.
Other Factors at Play
Net Interest Income (NII): Lending activities continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, the demand for commercial and industrial loans, real estate loans, and consumer loans accelerated in July and August.
The Federal Reserve continued with its hawkish monetary policy stance, raising interest rates by another 150 basis points in the quarter. The policy rate reached 3.0-3.25%, the highest level since 2008. This is likely to have had a favorable impact on Morgan Stanley’s net interest margin (NIM) and NII.
However, the inversion of the yield curve in the September-end quarter is expected to have weighed on NIM to some extent.
Our estimate for third-quarter NII is $2.22 billion, indicating a year-over-year rise of 7.5%.
Investment Banking (IB) Income: After an extraordinary performance for almost two years, global deal-making shrank for the third consecutive quarter. Raging inflation, the equity markets rout and fears of a recession dealt a blow to business sentiments and plans for expansion via acquisitions. Thus, both deal volume and total value numbers crashed in the third 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 expected to have been muted in the quarter. The consensus estimate for advisory fees is pegged at $827 million, suggesting a decline of 35% on a year-over-year basis. Our estimate for the same is pinned at $827.2 million, suggesting a year-over-year decline of 35%.
For similar reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volumes witnessed a decline too. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt in the quarter under review.
The consensus estimate for fixed-income underwriting fees is pegged at $393 million, suggesting a fall of 30.7% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fees of $481 million indicates a fall of 52.4%. Thus, the consensus estimate for total underwriting fees of $874 million implies a year-over-year plunge of 44.6%.
Our estimate for fixed-income underwriting fees is $392.8 million, while our estimate for equity underwriting fees is $480.9 million.
Overall, the Zacks Consensus Estimate for IB income of $1.40 billion indicates a decline of 53.6% from the prior-year quarter’s reported number. Our estimate for IB income is $1.70 billion, indicating a decline of 40.3%.
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 July-September quarter. As the company continues to invest in franchise, overall costs are anticipated to have flared up.
What Our Quantitative Model Predicts
According to our proven model, the chances of Morgan Stanley beating the Zacks Consensus Estimate for earnings this time around are high. This is because it has 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 +0.59%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for the company’s third-quarter earnings has moved 2.6% lower to $1.50 over the past seven days. The estimate suggests a 26.5% decline from the year-ago reported number. Our estimate for earnings is $1.77 per share.
The consensus estimate for sales is pegged at $13.20 billion, which indicates a year-over-year fall of 10.5%. Our estimate for total revenues is $13.71 billion.
Other Stocks to Consider
A couple of other finance stocks that you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model, are Associated Banc-Corp (ASB - Free Report) and Prosperity Bancshares (PB - Free Report) .
Associated Banc-Corp is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which sports a Zacks Rank #1 (Strong Buy) at present, has an Earnings ESP of +2.39%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Prosperity Bancshares is +0.86% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 26.
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Trading, Higher Rates to Aid Morgan Stanley's (MS) Q3 Earnings
Morgan Stanley’s (MS - Free Report) third-quarter 2022 results, scheduled to be announced on Oct 14, are expected to reflect the benefits of robust trading performance. Like the last quarter, wherein market volatility and client activity were unexpectedly robust, the overall trading business in the to-be-reported quarter was a bright spot.
After witnessing gradual normalization in the second half of 2021, trading activities have turned around since the beginning of this year. Certain developments, including Russia’s invasion of Ukraine and the continued supply-chain disruptions, have led to uncertainty among investors.
Also, fears of a severe economic slowdown amid the ultra-aggressive stance of the central banks across the globe to control inflation drove client activity and trading volumes in the third quarter.
These factors resulted in heightened volatility in the equity markets and other asset classes, including commodities, bonds and foreign exchange. Hence, Morgan Stanley is likely to have recorded an improvement in trading revenues this time.
The Zacks Consensus Estimate for third-quarter equity trading revenues is pegged at $2.57 billion. The figure suggests a decline of 10.8% from the previous-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $1.73 billion indicates a year-over-year increase of 5.5%. Our estimate for total trading income is $3.06 billion, which indicates a year-over-year rise of 7.1%.
Other Factors at Play
Net Interest Income (NII): Lending activities continued at a decent pace in the to-be-reported quarter. Per the Fed’s latest data, the demand for commercial and industrial loans, real estate loans, and consumer loans accelerated in July and August.
The Federal Reserve continued with its hawkish monetary policy stance, raising interest rates by another 150 basis points in the quarter. The policy rate reached 3.0-3.25%, the highest level since 2008. This is likely to have had a favorable impact on Morgan Stanley’s net interest margin (NIM) and NII.
However, the inversion of the yield curve in the September-end quarter is expected to have weighed on NIM to some extent.
Our estimate for third-quarter NII is $2.22 billion, indicating a year-over-year rise of 7.5%.
Investment Banking (IB) Income: After an extraordinary performance for almost two years, global deal-making shrank for the third consecutive quarter. Raging inflation, the equity markets rout and fears of a recession dealt a blow to business sentiments and plans for expansion via acquisitions. Thus, both deal volume and total value numbers crashed in the third 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 expected to have been muted in the quarter. The consensus estimate for advisory fees is pegged at $827 million, suggesting a decline of 35% on a year-over-year basis. Our estimate for the same is pinned at $827.2 million, suggesting a year-over-year decline of 35%.
For similar reasons, IPOs and follow-up equity issuances dried up in the to-be-reported quarter. Bond issuance volumes witnessed a decline too. Hence, Morgan Stanley’s underwriting fees are expected to have been hurt in the quarter under review.
The consensus estimate for fixed-income underwriting fees is pegged at $393 million, suggesting a fall of 30.7% from the prior-year quarter’s reported figure. The Zacks Consensus Estimate for equity underwriting fees of $481 million indicates a fall of 52.4%. Thus, the consensus estimate for total underwriting fees of $874 million implies a year-over-year plunge of 44.6%.
Our estimate for fixed-income underwriting fees is $392.8 million, while our estimate for equity underwriting fees is $480.9 million.
Overall, the Zacks Consensus Estimate for IB income of $1.40 billion indicates a decline of 53.6% from the prior-year quarter’s reported number. Our estimate for IB income is $1.70 billion, indicating a decline of 40.3%.
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 July-September quarter. As the company continues to invest in franchise, overall costs are anticipated to have flared up.
What Our Quantitative Model Predicts
According to our proven model, the chances of Morgan Stanley beating the Zacks Consensus Estimate for earnings this time around are high. This is because it has 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 +0.59%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
The Zacks Consensus Estimate for the company’s third-quarter earnings has moved 2.6% lower to $1.50 over the past seven days. The estimate suggests a 26.5% decline from the year-ago reported number. Our estimate for earnings is $1.77 per share.
The consensus estimate for sales is pegged at $13.20 billion, which indicates a year-over-year fall of 10.5%. Our estimate for total revenues is $13.71 billion.
Other Stocks to Consider
A couple of other finance stocks that you may want to consider, as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model, are Associated Banc-Corp (ASB - Free Report) and Prosperity Bancshares (PB - Free Report) .
Associated Banc-Corp is scheduled to release third-quarter 2022 earnings on Oct 20. The company, which sports a Zacks Rank #1 (Strong Buy) at present, has an Earnings ESP of +2.39%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Prosperity Bancshares is +0.86% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2022 results on Oct 26.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.