Morgan Stanley's Slow, Steady Summer

Jason Goldberg of Barclays expects better-than-expected earnings from Morgan Stanley MS, which is scheduled to report its third quarter financial results on October 19.

Goldberg, who has an Equal-Weight rating and $32 price target on the stock, sees third-quarter EPS of $0.68, above the consensus of $0.61.

“Compared with consensus, we believe our higher 3Q estimate primarily reflects a better FICC environment, as market conditions appear to be better than some expected,” Goldberg wrote in a note.

That said, the analyst expects Morgan Stanley’s ROE to be in the 8 percent area as it still has work to do to get to its 9–11 percent 2017 target.

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Meanwhile, Goldberg says expense could be weighed in the second half due to the conditional CCAR approval for an increased payout ratio.

“Relative to 2Q16, we expect lower revenues driven by seasonality in sales & trading and investment banking. Results in its Investment Management and Wealth Management units are expected to be higher on generally improving market conditions,” Goldberg highlighted.

According to Goldberg, the key items to watch on the print/call include:

1. “Strategic Goals (update).”
2. “Streamline ($1 billion expense reductions.”
3. “FICC balance sheet ($120 billion RWA by 2017).”
4. “Bank strategy/NII (NII benefits irrespective of rates).”
5. “Capital (approval, resubmission).”

At the time of writing, shares of Morgan Stanley were down 0.89 percent to $32.27.

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