Morgan Stanley’s stock (NYSE: MS) has lost roughly 6% YTD, as compared to the 18% rise in the S&P500 over the same period. Further, the stock is currently trading at $80 per share, which is 11% below its fair value of $90 – Trefis’ estimate for Morgan Stanley’s valuation.
Amid the current financial backdrop, MS stock has witnessed gains of 15% from levels of $70 in early January 2021 to around $80 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. However, the increase in MS stock has been far from consistent. Returns for the stock were 43% in 2021, -13% in 2022, and -6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 – indicating that MS underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financial sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MS face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
The investment bank surpassed the earnings estimate in the third quarter, while the revenues were in in-line with the expectations. It posted total revenues of $13.27 billion – up 2% y-o-y, driven by a 14% rise in the investment management and a 5% growth in the wealth management segments, partially offset by a 3% drop in the institutional securities unit. Notably, the institutional securities division includes investment banking and sales & trading businesses. On the cost front, total expenses witnessed an unfavorable increase of 5% y-o-y. Overall, it led to a 9% decrease in the adjusted net income to $2.26 billion.
The company’s top line grew 1% y-o-y to $41.25 billion in the first three quarters of 2023. While the wealth management revenues increased 10% y-o-y, it was almost offset by an 8% decline in the institutional securities segment. Further, the noninterest expenses as a % of revenues increased over the same period. Altogether, the adjusted net income decreased by 15% y-o-y to $7.15 billion.
Moving forward, we expect the fourth quarter results to follow the same trend. Overall, Morgan Stanley’s revenues are estimated to remain around $54.22 billion in FY2023. Additionally, MS’s adjusted net income margin is likely to see a slight dip in the year, leading to an adjusted net income of $9.34 billion and an annual GAAP EPS of $5.65. This coupled with a P/E multiple of just below 16x will lead to a valuation of $90.
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