Will Morgan Stanley (MS) Disappoint This Time?

Morgan Stanley (MS) is scheduled to release fourth-quarter and full-year 2013 results on Friday, Jan 17, before the opening bell.

In the last quarter, Morgan Stanley (NYSE:MS) delivered a positive earnings surprise of 19.1% driven by disciplined expense management and top-line growth. It marked the fifth straight quarter of positive earnings surprise.

However, will the company be able to keep the earnings streak alive? Let us see how things have developed for this announcement.

Morgan Stanley (NYSE:MS): Factors to Influence Q4 Results

We expect expense control and sound balance sheet as recorded in the third quarter to remain the key earnings drivers in the fourth quarter. Moreover, higher trading revenues on the back of enhanced equity market dynamics should boost the top line. Additionally, the decline in unemployment rate, an improving housing sector and flexible monetary policies are likely to aid growth.

Further, Morgan Stanley’s initiatives to offload its non-core operations to lower balance sheet risks and its primary focus on the less capital incentive Investment Management and Wealth Management segments are commendable. In Dec 2013, the company took a step in the right direction by distancing itself from commodities operations by announcing the sale of its Global Oil Merchanting unit to Russia-based Rosneft Oil Company.

Moreover, unlike other Wall Street biggies, litigation issues have not plagued Morgan Stanley in the fourth quarter. However, we do not expect any significant rise in interest income due to sluggish loan demand and a persistent low interest rate environment.

Nevertheless, Morgan Stanley (NYSE:MS)’s activities during the fourth quarter of the year were sufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter increased 2.3% to 45 cents per share over the last 7 days.

Morgan Stanley (NYSE:MS): Earnings Whispers

Our proven model does not conclusively show that Morgan Stanley is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: The Earnings ESP for Morgan Stanley is -2.22%. This is because the Most Accurate estimate of 44 cents is below the Zacks Consensus Estimate of 45 cents.

Zacks Rank: Morgan Stanley’s Zacks Rank #3 (Hold), however, increases the predictive power of ESP. Nevertheless, we need to have a positive ESP to become confident of a positive earnings surprise call.

Other Stocks to Consider

Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The earnings ESP for State Street Corporation (STT) is +3.36% and it carries a Zacks Rank #3. The company is scheduled to release fourth-quarter results on Jan 24.

The earnings ESP for Northern Trust Corporation (NTRS) is +1.32% and it has a Zacks Rank #3 (Hold). The company is slated to release fourth-quarter results on Jan 22.

Fifth Third Bancorp (FITB) has an earnings ESP of 0.00% and holds a Zacks Rank #2 (Buy). It is scheduled to report fourth-quarter results on Jan 23.