Morgan Stanley Q1 preview: Where next for MS stock?

When will Morgan Stanley report Q1 earnings?

Morgan Stanley will report first quarter earnings for 2022 before US markets open on Thursday April 14.

That will come the day after JPMorgan kicks things off on Wednesday, and will be on the same day that other major banks Wells Fargo, Goldman Sachs, Citigroup and US Bancorp will release first quarter earnings.

Morgan Stanley Q1 earnings preview

Morgan Stanley delivered record net revenues and strong growth in earnings in 2021, driven by strong growth across all its major businesses. The unwinding of provisions set aside for potentially bad loans during the pandemic aided the entire industry. Meanwhile, revenue from Morgan Stanley’s Investment Banking and Equities both hit new all-time records, its Wealth Management arm benefited from record asset management fee-based flows and a spike in transactional revenue following the acquisition of E*TRADE Financial Corp, and the Investment Management division saw its revenue almost double after acquiring Eaton Vance Corp.

That provides some tough comparisons in 2022 and, as a result, Wall Street forecasts that Morgan Stanley will report a 9.3% year-on-year decline in net revenue in the first quarter to $14.3 billion, while basic EPS is set to decline 14% to $1.91.

Analysts are expecting the topline to come under pressure from lower Investment Banking fees and believe that the declines seen in equity and bond prices this year will hurt the revenue run-rate for its Wealth Management arm. Notably, the bank’s equities business should deliver a stronger performance given it is coming up against weak comparatives after suffering the losses spawning from the crisis at Archegos the year before.

A key area where Morgan Stanley outperformed its peers in the previous quarter was costs. Although costs started to increase across the industry last year, partly due to soaring compensation costs following a record year, Morgan Stanley saw its compensation costs come in broadly flat year-on-year in the fourth quarter while other expenses also grew at a slower rate than its rivals that were less successful at keeping a lid on costs. That trend is expected to continue in the first quarter, with analysts forecasting compensation costs will drop 8.7% year-on-year in the period to $6.2 billion.

This was one of the reasons why Morgan Stanley said it is now targeting a return on tangible equity (ROTE) of at least 20% going forward from its previous goal of 17%. It already achieved this level of profitability last year and posted 19.8% for 2021 as a whole. Still, analysts don’t believe the bank will hit that target until the second half of 2022 as higher interest rates come into play, with Wall Street expecting a ROTE of 17.7% in the first quarter and 19.7% in the second.

Investors will be keen to hear Morgan Stanley’s view on the uncertain economic outlook going forward. While the bank, alongside its peers, is set to benefit from rising interest rates this year as the Federal Reserve battles against rampant inflation, the outlook remains plagued by numerous headwinds such as the ongoing conflict in Ukraine, supply chain headwinds and rising costs. They will also want to hear more about the integration of its newer businesses.

The current expectation for Morgan Stanley over the full year in 2022 is that the bank will see net revenues decline 3.8% and for EPS to decline over 11%. While that is a starkly different picture compared to 2021, that is a much milder decline in earnings than what Wall Street has forecast for its rivals JPMorgan, Goldman Sachs, Wells Fargo and Citigroup – suggesting the bank could outperform rivals this year.

Where next for MS stock?

Morgan Stanley shares hit a new all-time record high of $109.73 in February 2022 but have since come under significant pressure and declined over 22% to trade closer to $84 today.

The stock hit at an 11-month closing-low last week at $83 before rebounding on Friday. This is now the immediate floor the stock and a break below here opens the door to the next key level seen a year ago at $81.40 – which was briefly touched during intraday trading last week. A move below here would be more significant as it opens the door to sub-$77.

We saw the 100-day moving average slip below the 200-day moving average late last month when the latest leg of the downtrend began and the divergence between the two has only widened since then, while the 50-day moving average continues to sink further below both longer-term metrics. The RSI has also sunk further into bearish territory in recent weeks while trading volumes have remained broadly stable.

The rise late last week suggests buyers have started to return to the market after hitting that 11-month low and we could see the stock swiftly recover toward the 50-day sma at $93.50 if the current floor holds and it can start to reverse its fortunes and head higher. That is the first upside target that will be followed by the March-high of $95, the 100-day sma at $96.50 and then the 200-day sma at $98. Notably, the 29 brokers that cover the stock are extremely bullish on Morgan Stanley and believe there is over 30% potential upside from the current share price over the next 12 months, with an average target price of $109.78 – just above the intraday record high seen in February.

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