The top U.S. banks, including Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS), are slated to unveil their Q3 earnings this week. While analysts forecast Bank of America’s bottom line to improve, Morgan Stanley’s EPS is expected to remain under pressure due to the challenging market environment.
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With this backdrop, let’s delve into analysts’ expectations for Q3.
Is Bank of America Stock Expected to Go Up?
Bank of America will release its Q3 financials on October 17. Wall Street expects Bank of America to deliver earnings of $0.83 per share in Q3 compared to the EPS of $0.81 in the prior-year quarter. This expected year-over-year improvement can be attributed to higher Net Interest Income (NII), improved operating leverage in the consumer banking sector, and a reduction in outstanding shares. However, challenging market conditions will likely hurt the bank’s wealth management revenues, affecting its overall profitability. Additionally, higher provisions for credit losses are expected to continue to be a burden.
Ahead of the Q3 print, Evercore ISI analyst Glenn Schorr lowered BAC’s price target on October 5. The analyst slightly reduced the estimates for Q3 as he expects lower markets, higher interest rates, and a slow recovery in investment banking to hurt BAC’s financials. Nonetheless, Schorr is bullish about Bank of America stock.
Following Schorr, Jefferies analyst Ken Usdin lowered his price target on BAC stock to $28 from $31 on October 10. He retained a Hold rating for BAC stock and foresees potential rate cuts by the U.S. Federal Reserve in the coming years, which could impact the bank’s Net Interest Incomes (NIIs).
Overall, Bank of America stock has a Moderate Buy consensus rating on TipRanks, based on 11 Buy, seven Hold, and two Sell recommendations. Moreover, analysts’ average price target of $34.40 implies 28.55% upside potential from current levels.
Is Morgan Stanley a Buy or Hold?
Morgan Stanley will announce its third-quarter financial results on Wednesday, October 18, 2023. Analysts expect higher interest income and a decline in outstanding share count to support its bottom line. However, challenges in the Investment Banking, Trading, and Investment segments could continue to exert pressure on its revenue and earnings. Analysts expect Morgan Stanley to post earnings of $1.31 per share, compared to $1.53 in the prior-year quarter.
Ahead of Q3 earnings, UBS analyst Brennan Hawken downgraded Morgan Stanley stock to Hold from Buy on October 10. The analyst lowered the price target to $84, down from $110. Hawken lauds Morgan Stanley’s transformation into a wealth management-focused firm. However, a challenging revenue environment and its current valuation keep the analyst sidelined.
On October 5, Schorr lowered Morgan Stanley’s price target to $102 from $104. The analyst expects a tough macro backdrop to pose challenges for banks, asset managers, and brokers, including Morgan Stanley. However, he maintained a Buy rating on MS stock ahead of the Q3 print.
Overall, Morgan Stanley stock sports a Moderate Buy consensus rating on TipRanks, reflecting 10 Buy and six Hold recommendations. Analysts’ average price target of $96 implies 23.41% upside potential from current levels.
Bottom Line
Higher interest income, a lower share count, and a focus on improving efficiency will likely cushion the bottom line numbers of Bank of America and Morgan Stanley stocks. However, a challenging macro backdrop, slow recovery in various areas of investment banking, and higher funding costs keep analysts cautiously optimistic ahead of Q3 earnings.
