NEW YORK, NEW YORK - JANUARY 17: The Morgan Stanley headquarters building is seen on January 17, ... [+]
Morgan Stanley’s stock (NYSE: MS) has gained 2% YTD, as compared to the 14% rise in the S&P500 over the same period. Notably, Morgan Stanley’s peer Charles Schwab (NYSE: SCHW) is up 5% over the same period. Overall, at the current market price of $95 per share, MS stock is trading 5% below its fair value of $100 – Trefis’ estimate for Morgan Stanley’s valuation.
Amid the current financial backdrop, MS stock has shown strong gains of 35% from levels of $70 in early January 2021 to around $95 now, vs. an increase of about 45% 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 10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% 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 Financials sector including JPM, V, 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 street estimate in the first quarter of FY 2024. It posted total revenues of $15.14 billion – up 4% y-o-y., mainly driven by a 3% increase in the institutional securities (investment banking and sales & trading) unit, a 5% rise in wealth management, and a 7% growth in the investment management segment. On the cost front, total non-interest expenses as a % of revenues witnessed a favorable drop in the quarter. Overall, it led to a 15% y-o-y improvement in the adjusted net income to $3.27 billion.
The company’s top line marginally increased to $54.14 billion in FY 2023. While the wealth management division posted growth in the year, the positive impact was almost offset by lower institutional securities revenues. In terms of costs, total expenses as a % of revenues increased over the same period, resulting in a 19% decline in the adjusted net income to $8.5 billion.
Moving forward, we expect the same trend to follow in Q2. All in all, we estimate Morgan Stanley’s revenues to remain around $57.76 billion in FY2024. Additionally, MS’s adjusted net income margin is likely to improve in the year, resulting in an adjusted net income of $10.9 billion and an annual GAAP EPS of $6.88. This coupled with a P/E multiple of just above 14x will lead to a valuation of $100.
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