Morgan Stanley Third Quarter Earnings Preview

By Investopedia Staff | October 15, 2012 AAA

On Thursday, October 18, 2012, Morgan Stanley (NYSE:MS) will announce its third quarter earnings. The consensus analyst estimate has dropped from 28 cents a share to the current estimate of earnings of 25 cents a share.

Investors care about earnings because they drive stock prices. Strong earnings generally result in the stock price moving up and vice versa. SEE: Surprising Earnings Results

What to Expect: Whereas the consensus estimate was 37 cents three months ago, it has since fallen. Analysts are expecting earnings of 94 cents per share for the fiscal year.

Revenue for the quarter is expected to be $6.52 billion, short of last year's reported figure of $11.5 billion by 43.3%. Morgan Stanley is expected to report revenue of $28.11 billion for the fiscal year.

Company Performance: Revenue has slipped over the last three quarters. It dropped 25.4% to $8.44 billion in second quarter. Prior to that, the figure declined 10% in the first quarter and 26.3% in the fourth quarter of the last fiscal year.

The P/E ratio for MS is 14.9, below the industry average of 18.12. Companies with low P/E ratios may find it easier to surprise the market to the upside, even if their financial performance is not as strong as that of companies with high P/E ratios. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: Profit With The Power Of Price-To-Earnings

The stock price has increased from $14.34 on July 17, 2012 to $17.31 over the past quarter. Morgan Stanley's best recent streak was when its price gained $3.34 per share between August 30, 2012 and September 14, 2012.

The Competition: Morgan Stanley provides financial products and services to a group of clients and customers, including corporations, governments, financial institutions, and individuals. Most analysts (11 of 20) rate Morgan Stanley a buy. They have grown pessimistic about the stock, as the number of buy ratings has dropped slightly over the past three months.

The company's closest competitor in the investment services industry is UBS AG (UBS). Analysts are more optimistic about Morgan Stanley than about UBS AG. Only two out of three analysts rate the latter a buy.

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