Morgan Stanley MS is scheduled to release first-quarter 2015 results on Apr 20, before the opening bell.
Last quarter, Morgan Stanley lagged the Zacks Consensus Estimate owing to a slump in fixed-income, currency and commodities (“FICC”) trading income as well as investment banking revenues. However, these were partially offset by a drastic improvement in net interest income, a rise in advisory revenues and lower operating expenses.
Will Morgan Stanley disappoint this time as well? Or will it be able to combat industry challenges and report encouraging results? Let us see how things have been shaping up for this announcement.
Factors Impacting Q1 Results
We believe that growth in advisory and underwriting revenues, a major driving force in 2014 led by a M&A boom, is likely to lose some strength sequentially in Q1 owing to lesser number of deal closures. As a result, this would slightly dampen Morgan Stanley’s non-interest revenues in the quarter.
Though a prolonged low interest rate environment is hampering interest income growth, some pickup in consumer and commercial loan demand will aid Morgan Stanley’s net interest income.
Improved trading volume driven by a rise in client activity should support higher trading fee income. Also, investment banking revenues should witness robust year-over-year growth attributable to renewed volatility in global financial markets.
Further, FICC (fixed income, currencies & commodities), in particular the currency trading desks, should perform better on the back of higher market volatility and foreign exchange rates. All these are expected to support Morgan Stanley’s non-interest income.
Morgan Stanley’s expense-savings initiatives are expected to support its bottom line as well. Moreover, in the absence of any major legal headwind in the near term, we predict nil or minimal legal reserve in the quarter.
Notably, Morgan Stanley’s activities during the first quarter were not sufficient to win analysts’ confidence. The Zacks Consensus Estimate has remained stable at 79 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively shows that Morgan Stanley will be able to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Morgan Stanley is -1.27%. This is because the Most Accurate estimate of 78 cents per share stands below the Zacks Consensus Estimate of 79 cents.
Zacks Rank: Morgan Stanley’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for Fifth Third Bancorp FITB is +2.70% and it has a Zacks Rank #3. It is scheduled to report results on Apr 21.
BankUnited, Inc. BKU has an Earnings ESP of +2.27% and carries a Zacks Rank #3. It is scheduled to report results on Apr 23.
State Street Corporation STT has an Earnings ESP of +0.95% and carries a Zacks Rank #3. It is slated to release third-quarter results on Apr 24.
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