How will Morgan Stanley’s share price react to Q3 earnings?

Although Morgan Stanley’s [MS] share price has improved since March, it still hasn’t fully recovered. On its best day of trading since the slump, Morgan Stanley’s share price closed at $53.25 on 2 September. Since then, Morgan Stanley’s share price took another tumble, but it is slowly recovering in the run up to its third quarter earnings announcement. As the investment bank prepares to release its third quarter earnings results on 15 October, what should investors expect?

Morgan Stanley’s share price flopped in March as the markets reacted to the coronavirus pandemic. The stock fell to an intraday low of $27.76 before closing slightly higher at $27.81 on 23 March. This not only marked a 44.3% year-to-date loss, but it was also the stock’s lowest value since August 2016.  

Ever since, Morgan Stanley’s share price has struggled to reach a value above its 2020 opening price of $51.20. 

As of 13 October, Morgan Stanley’s share price was up just 0.9% for the year to date at $50.44.

An earnings drop and flat revenue

For the quarter ended in June, Morgan Stanley reported revenues of $13.41bn, an increase of 30.94% year-over-year from $10.24bn, which beat the Zacks consensus estimate by 24.47%.

“Our decade long business transformation was intended to provide stability during times of serious stress. The second quarter tested the model and we performed exceedingly well, delivering record results. This builds on the momentum of a very strong first quarter,” James Gorman, Morgan Stanley’s chairman and CEO, said in a statement released alongside the results. 

When Morgan Stanley released its second quarter results on 16 July, it reported earnings of $2.04 per share, which beat the Zacks consensus estimates of $1.17 by 74.4% and a 66% increase from the previous year’s earnings of $1.23 per share.    

According to the research publication, this is the third time that Morgan Stanley has posted  results that beat consensus earnings estimates over the past four quarters.

Looking ahead to the third quarter, Zacks analysts estimate the US investment bank will post earnings of $1.15 per share in its upcoming earnings report, which would mark a 4.96% drop compared to the previous year. Meanwhile, the publication expects revenues to reach $10.06bn, up 0.3% from the same period in 2019.

In the longer term, Morgan Stanley’s recent acquisition of investment management firm Eaton Vance could put it in a strong position to compete with the likes of BlackRock and Vanguard. 

The $7bn cash and shares deal is a realisation of the bank’s, and Gorman’s, aim to increase its investment reach. Gorman noted two years ago that he planned to double the size of Morgan Stanley’s investment division over the coming five to seven years, according to the Financial Times.

Analysts’ outlook on Morgan Stanley’s share price

Ahead of Morgan Stanley’s earnings report, Anke Reingen, an analyst at RBC Capital, maintained a Buy rating on Morgan Stanley’s share price. 

Reingen set a price target of $55 on 5 October, which would represent a 9% upside from its 13 October closing price. 

Reingen expects investment banks to have performed strongly in the third quarter, compared to a generally disappointing showing in the previous quarter. Total revenues are pegged to have increased by an average of 9% from the previous quarter. 

The consensus among 27 analysts polled by CNN is also to buy the stock. This rating is held by 18 analysts, with two giving it an Outperform and seven rating the stock a Hold.

Among the 23 analysts offering 12-month forecasts for Morgan Stanley’s share price, the median target was $58, with a high estimate of $78 and a low of $45. The median estimate represents a 15% increase from Morgan Stanley’s share price on 13 October.