Shares of Goldman Sachs GS dipped in morning trading Tuesday, shortly after the company reported its first-quarter earnings results. Goldman surpassed estimates on the top and bottom line, but it is possible that a solid report was already priced in to the stock. Nevertheless, investors will now shift their focus to the upcoming earnings announcement from fellow investment banking giant Morgan Stanley MS .
Goldman continued the trend of strong trading revenue that was first evidenced by consumer & investment hybrid banks like JPMorgan Chase JPM , Citigroup C , and Bank of America BAC .
The financial behemoth posted 31% growth in its Institutional Client Services division-led by elevated net revenues from commodities, currencies, and credit products-as well as 43% growth in its Investing & Lending segment-largely thanks to a surge in revenues from investments in equities and debt securities.
Morgan Stanley investors will hope the company can report similar growth. Let's take a closer look at what the latest estimates are saying.
Latest Outlook and Valuation
Based on our latest Zacks Consensus Estimates, we expect Morgan Stanley to report earnings of $1.28 per share and revenue of $10.45 billion. These results would represent year-over-year growth rates of 28.0% and 7.2%, respectively. It is worth noting that Morgan Stanley's earnings estimates have trended higher recently, adding about seven cents over the quarter.
We can also turn to our exclusive non-financial metrics consensus estimate file to prepare for the report. The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.
According to these consensus estimates, Morgan Stanley is poised to post revenue of $2.14 billion in its Institutional Securities, Equity business. This would mark growth of 5.9%, which is a significant improvement from the 1.5% decline witnessed in the previous quarter. Nevertheless, investors will expect Morgan Stanley to outperform in this unit.
Heading into today, MS was trading with a Forward P/E of 11.5, which is basically in line with its industry's average of 11.9. Within the past year, the stock has traded as high as 14.8x forward 12-month earnings and as low as 11.3x. Its median earnings multiple over that time is 12.4x. Investors might conclude that MS shares are slightly discounted compared to their recent valuations.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Morgan Stanley surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Morgan Stanley is currently holding a Zacks Rank #3 (Hold) and an Earnings ESP of 0.0%. This means that the most recent analyst estimates have been in line with the consensus. In other words, our model is not conclusively calling for a beat.
Another important thing to consider ahead of Morgan Stanley's report is the company's history of earnings surprises and the effect that these surprises have had on share prices. The firm has met or surpassed estimates in each of the trailing nine quarters, and the stock has a solid record of gaining momentum during earnings season.
We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the course of Morgan Stanley's streak, shares have turned positive in seven of these windows.
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