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IB, Trading to Support Morgan Stanley's (MS) Q2 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 decent in the second quarter of 2024, supported by increased client activity. Thus, the company’s trading numbers are likely to have provided some support to its quarterly results, slated to be announced before the opening bell on Jul 16.
In the to-be-reported quarter, the likelihood of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the interest rate path drove client activity. While volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange, Morgan Stanley is likely to have recorded growth in trading revenues, supported by increased client activity.
The Zacks Consensus Estimate for the company’s equity trading revenues is pegged at $2.61 billion, suggesting a rise of 2.3% from the prior-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $2 billion indicates a year-over-year rise of 16.6%.
Our estimates for second-quarter equity trading revenues and fixed-income trading revenues are $2.60 billion and $1.93 billion, respectively.
Other Key Factors at Play
Investment Banking (IB) Income: Following the weakness in 2022 and 2023, global mergers and acquisitions witnessed a rebound in the second quarter of 2024. Both deal value and volume witnessed a remarkable comeback, driven by solid financial performance, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions were headwinds.
Thus, Morgan Stanley’s position as one of the leading players in the space is likely to have offered support to advisory fees in the quarter.
The Zacks Consensus Estimate for advisory fees is pegged at $498 million, suggesting a year-over-year rise of 9.5%. Our estimate for the same is pinned at $488.7 million, indicating a 7.4% rise.
The IPO market activity was decent in the second quarter, given the impressive equity market performance. This also drove solid activity in follow-up equity issuances. Further, bond issuance volumes were boosted by lower yields, a better operating backdrop than last year, election-related uncertainty and a resurgence in M&As. Hence, Morgan Stanley’s underwriting fees are expected to have improved in the quarter on a year-over-year basis.
The consensus estimate for fixed-income underwriting fees is pegged at $490 million, suggesting a rise of 24.1% from the year-ago reported figure. The Zacks Consensus Estimate for equity underwriting fees of $363 million indicates an increase of 61.3%. The consensus estimate for total underwriting fees of $853 million implies a rise of 37.6% from the year-ago quarter’s actual.
Our estimate for fixed-income underwriting fees is $451.7 million, whereas the same for equity underwriting fees is $296.1 million.
Thus, growth in total IB income is likely to have been impressive, driven by the expected rise in underwriting revenues, as well as advisory fees. The Zacks Consensus Estimate for IB income of $1.43 billion indicates a year-over-year rise of 32.8%. Our estimate for IB income is pegged at $1.24 billion.
Net Interest Income (NII): Given the clarity on the Fed’s interest rate path for the year and the likelihood of a soft landing of the U.S. economy, the lending scenario improved in the second quarter. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the quarter.
However, as the Federal Reserve kept interest rates steady in the quarter (at a 22-year high of 5.25-5.5%), Morgan Stanley is less likely to have recorded significant improvement in NII. Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
The Zacks Consensus Estimate for NII is pegged at $1.91 billion, suggesting a decline of 4.9% on a year-over-year basis. Our estimate for NII is $1.83 billion, implying a dip of 9.2%.
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 June-ended quarter. As the company has been investing in franchises, overall costs are anticipated to have been elevated.
We expect second-quarter total non-interest expenses of $10.34 billion.
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 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 are reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Morgan Stanley is -0.83%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for the company’s second-quarter earnings has been unchanged at $1.66 per share over the past 30 days. The estimate suggests a 33.9% rise from the year-ago reported number.
The consensus estimate for sales is pegged at $14.22 billion, which indicates a year-over-year rise of 5.7%.
Stocks to Consider
A couple of finance stocks, which have the right combination of elements to post an earnings beat in the upcoming releases per our model, are Capital One Financial Corporation (COF - Free Report) and Moody's Corporation (MCO - Free Report) .
The Earnings ESP for COF is +1.52% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 23.
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IB, Trading to Support Morgan Stanley's (MS) Q2 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 decent in the second quarter of 2024, supported by increased client activity. Thus, the company’s trading numbers are likely to have provided some support to its quarterly results, slated to be announced before the opening bell on Jul 16.
In the to-be-reported quarter, the likelihood of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the interest rate path drove client activity. While volatility was low in equity markets and other asset classes, including commodities, bonds and foreign exchange, Morgan Stanley is likely to have recorded growth in trading revenues, supported by increased client activity.
The Zacks Consensus Estimate for the company’s equity trading revenues is pegged at $2.61 billion, suggesting a rise of 2.3% from the prior-year quarter’s reported number. The consensus estimate for fixed-income trading revenues of $2 billion indicates a year-over-year rise of 16.6%.
Our estimates for second-quarter equity trading revenues and fixed-income trading revenues are $2.60 billion and $1.93 billion, respectively.
Other Key Factors at Play
Investment Banking (IB) Income: Following the weakness in 2022 and 2023, global mergers and acquisitions witnessed a rebound in the second quarter of 2024. Both deal value and volume witnessed a remarkable comeback, driven by solid financial performance, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions were headwinds.
Thus, Morgan Stanley’s position as one of the leading players in the space is likely to have offered support to advisory fees in the quarter.
The Zacks Consensus Estimate for advisory fees is pegged at $498 million, suggesting a year-over-year rise of 9.5%. Our estimate for the same is pinned at $488.7 million, indicating a 7.4% rise.
The IPO market activity was decent in the second quarter, given the impressive equity market performance. This also drove solid activity in follow-up equity issuances. Further, bond issuance volumes were boosted by lower yields, a better operating backdrop than last year, election-related uncertainty and a resurgence in M&As. Hence, Morgan Stanley’s underwriting fees are expected to have improved in the quarter on a year-over-year basis.
The consensus estimate for fixed-income underwriting fees is pegged at $490 million, suggesting a rise of 24.1% from the year-ago reported figure. The Zacks Consensus Estimate for equity underwriting fees of $363 million indicates an increase of 61.3%. The consensus estimate for total underwriting fees of $853 million implies a rise of 37.6% from the year-ago quarter’s actual.
Our estimate for fixed-income underwriting fees is $451.7 million, whereas the same for equity underwriting fees is $296.1 million.
Thus, growth in total IB income is likely to have been impressive, driven by the expected rise in underwriting revenues, as well as advisory fees. The Zacks Consensus Estimate for IB income of $1.43 billion indicates a year-over-year rise of 32.8%. Our estimate for IB income is pegged at $1.24 billion.
Net Interest Income (NII): Given the clarity on the Fed’s interest rate path for the year and the likelihood of a soft landing of the U.S. economy, the lending scenario improved in the second quarter. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was decent in the quarter.
However, as the Federal Reserve kept interest rates steady in the quarter (at a 22-year high of 5.25-5.5%), Morgan Stanley is less likely to have recorded significant improvement in NII. Also, the inverted yield curve in the June-ended quarter and high funding costs are expected to have weighed on NII growth.
The Zacks Consensus Estimate for NII is pegged at $1.91 billion, suggesting a decline of 4.9% on a year-over-year basis. Our estimate for NII is $1.83 billion, implying a dip of 9.2%.
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 June-ended quarter. As the company has been investing in franchises, overall costs are anticipated to have been elevated.
We expect second-quarter total non-interest expenses of $10.34 billion.
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 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 are reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Morgan Stanley is -0.83%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for the company’s second-quarter earnings has been unchanged at $1.66 per share over the past 30 days. The estimate suggests a 33.9% rise from the year-ago reported number.
Morgan Stanley Price and EPS Surprise
Morgan Stanley price-eps-surprise | Morgan Stanley Quote
The consensus estimate for sales is pegged at $14.22 billion, which indicates a year-over-year rise of 5.7%.
Stocks to Consider
A couple of finance stocks, which have the right combination of elements to post an earnings beat in the upcoming releases per our model, are Capital One Financial Corporation (COF - Free Report) and Moody's Corporation (MCO - Free Report) .
The Earnings ESP for COF is +1.52% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 23.
MCO is scheduled to release second-quarter 2024 earnings on Jul 23. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +6.44%. 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.