Earnings Preview: Morgan Stanley

Morgan Stanley (MS) is expected to report Q4 earnings before market open Wednesday, Dec. 17, with a conference call scheduled for 11:00 am.

Guidance

Analysts are looking for EPS of (34c) on revenue of $3.78B. The consensus range for EPS is ($1.15) to 50c while the consensus range for revenue is $1.72B to $6.98B, according to First Call. Both consensus EPS and consensus revenue estimates are above year-ago levels.

Analyst Views

Goldman Sachs (GS) reported results that were more dismal than consensus estimates, but the shares rallied, since the results did beat the most direct predictions However, several research firms have recently lowered their estimates for Morgan Stanley and released pessimistic outlooks for the investment bank.

Deutsche Bank reduced its estimates for Morgan Stanley to below consensus levels and the firm reduced its target to $22 from $26 while maintaining its Hold rating. William Blair recently wrote that November "was a horrific month" for Morgan Stanley, as trading conditions during the month were worse than the firm had expected. William Blair expects Morgan Stanley's net revenue to drop 25% year-over-year ex charges, and the firm predicts that the investment bank's principal investment write-downs and commercial mortgage write-downs will both jump 100%.

Similarly, Ladenburg's Richard Bove slashed his 2008 EPS estimate for Morgan Stanley to $3.54 from $4.11. Wachovia was more positive. The firm thinks that Morgan Stanley looks "more fundamentally sound," and believes that the investment bank's Tier 1 capital levels are among the best in the country. The firm believes Morgan's retail brokerage business is still performing relatively well, and Wachovia predicts that the company's commodities business will offset some of its weaknesses in other areas.