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Earnings Preview: Morgan Stanley to report results following stock rally

Morgan Stanley (MS) is scheduled to report Q4 earnings before the open on Friday, January 18, with a conference call scheduled for 10:00 am ET. Morgan Stanley is a financial services company that provides financial advisory and capital raising services to clients... EXPECTATIONS: Analysts are looking for EPS of 27c on revenue of $7.02B, according to First Call. The consensus range for EPS is 15c-40c on revenue of $5.94B-$7.60B... LAST QUARTER: Morgan Stanley reported stronger than expected third quarter results, excluding certain items related to the valuation of its debt. However, the company’s institutional securities revenue sank to $1.376B from $6.41B during the same period in 2011, and its institutional securities business swung to a pre-tax loss of $1.917B, versus a profit of $3.447B in the third quarter of 2011. On a positive note, the bank’s global wealth management unit generated revenue of $3.36B last quarter, up from $3.226B, but the unit’s pre-tax income fell to $239M from $356M. Morgan Stanley CEO James Gorman said on November 29 that he wanted to use some of the bank’s excess capital to increase returns for its shareholders, The Financial Times reported. More specifically, on December 11 The Wall Street Journal reported that Morgan Stanly was considering buying back shares for the first time in more than four years. The bank will have to receive permission from the Fed in order to buy back shares. In other news, Morgan Stanley is reportedly planning to cut 1,600 jobs in its investment banking unit, and it, together with Goldman Sachs (GS), agreed to pay a total of $557M to the Fed to settle accusations of mortgage loan servicing and foreclosure improprieties... STREET RESEARCH: Analysts have had mixed views on Morgan Stanley in recent weeks. SunTrust on January 3 downgraded the stock to Reduce from Neutral, as the firm believes that the bank may report weaker than expected results in 2013 and 2014, while it may return less cash to shareholders than many on the Street are expecting. Conversely, CLSA increased its price target on the stock to $27 from $23 on January 2. CLSA wrote that Morgan Stanley is the cheapest bank based on franchise value, and that ultimately the company will aggressively downsize its fixed income business, improving its return on equity. The firm maintained a Buy rating on the stock... PRICE ACTION: Over the past six months, Morgan Stanley’s stock has surged over 43%. The shares have continued their strong run recently, gaining about 7.5% since the beginning of the year.