Is Morgan Stanley Stock Fairly Priced?
Morgan Stanley’s stock (NYSE: MS) has lost 22% YTD, as compared to the 20% decline in the S&P500 over the same period. Further, the stock is currently trading at $77 per share, which is 29% below its fair value of $108 – Trefis’ estimate for Morgan Stanley’s valuation.
The investment bank announced last week that it has successfully cleared the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review (“CCAR”) stress test. Further, the company stated that it will increase the quarterly common stock dividend by 11% from $0.70 per share to $0.775 per share. In addition, the firm’s board of directors also authorized a new multi-year share repurchase program of up to $20 billion, without a set expiration date. Notably, both the new dividend and share repurchase program will commence from the third quarter of 2022.
The company’s top line increased 23% y-o-y to $59.8 billion in 2021, with each of the three segments (investment management, wealth management, and institutional securities) reporting growth. That said, while the bank surpassed the consensus estimates in the first quarter of 2022, its total revenues were down 6% y-o-y. This was mainly due to negative growth in the institutional securities unit driven by lower investment banking and fixed income trading revenues. Further, the adjusted net income declined 11% y-o-y in the quarter. Moving forward, we expect the revenues and earnings to remain below the year-ago level in the second quarter. Markedly, the consensus estimates for Q2 revenues and earnings are around $13.8 billion and $1.67 respectively.
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Although the benchmark rate hikes are expected to benefit the net interest income of the firm, a drop in investment banking and sales & trading revenues will likely more than offset the positive effect. Overall, Morgan Stanley’s revenues are forecast to remain around $56.7 billion in FY2022. Also, MS’s adjusted net income margin is likely to show a slight decrease in the year, leading to an adjusted net income of $13.3 billion and an annual EPS of $7.77. This coupled with a P/E multiple of just below 14x will lead to the valuation of $108.
With inflation rising and the Fed raising interest rates, Morgan Stanley has fallen 22% this year. Can it drop more? See how low can Morgan Stanley stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
| Returns | Jul 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| MS Return | 1% | -22% | 82% |
| S&P 500 Return | 1% | -20% | 71% |
| Trefis Multi-Strategy Portfolio | 3% | -25% | 200% |
[1] Month-to-date and year-to-date as of 7/4/2022
[2] Cumulative total returns since the end of 2016
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