Morgan Stanley’s stock (NYSE: MS) has seen a 7% YTD decline, in contrast to the S&P 500’s 9% increase. The stock dropped 5.2% in a single day following news of a regulatory probe into the bank’s wealth management unit. Currently trading at $87 per share, it is valued at 9% below its fair value estimate of $95. Despite a 20% rise from $70 in January 2021 to $85 now, Morgan Stanley’s stock has seen inconsistent performance, with returns of 43% in 2021, -13% in 2022, and 10% in 2023 compared to the S&P 500’s returns of 27%, -19%, and 24% over the same period, indicating underperformance in 2023.
In the fourth quarter of 2023, Morgan Stanley reported better-than-expected revenues of $12.9 billion, a 1% y-o-y increase driven by gains in investment banking and sales & trading segments. However, total noninterest expenses as a % of revenues increased, leading to a 35% drop in adjusted net income to $1.4 billion. For the full year 2023, top-line growth was 1% y-o-y at $54.14 billion, with wealth management revenue up 8% y-o-y but offset by lower investment banking and sales & trading income. Adjusted net income declined by 19% y-o-y to $8.53 billion.
Looking ahead to Q1, Morgan Stanley’s revenues are expected to remain around $56.8 billion in FY2024 with an adjusted net income of $9.82 billion and an annual GAAP EPS of $6.26. With a P/E multiple just over 15x, the valuation is expected to reach $95. Despite these projections, the question remains whether Morgan Stanley will be able to outperform the S&P 500 in the face of an uncertain macroeconomic environment with high oil prices and elevated interest rates.
Consistently beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweights in the Financials sector and megacap stars like Google, Tesla, and Microsoft. However, the Trefis High Quality Portfolio, comprising 30 stocks, has outperformed the benchmark index each year over the same period. The HQ Portfolio’s better returns with less risk suggest a smoother ride compared to the marketplace roller-coaster. Given the current uncertainties, it remains to be seen if Morgan Stanley will face similar underperformance in the coming months or experience a significant upswing.
Investors are advised to carefully consider the outlook for Morgan Stanley’s performance moving forward, taking into account its recent financial results, projections for FY2024, and the broader economic environment. While the stock has shown resilience in the face of market fluctuations, the outcome of the regulatory probe and other external factors could impact its future performance. As always, a well-diversified portfolio with a mix of high-quality stocks like those in the Trefis High Quality Portfolio may offer a safer and potentially more rewarding investment strategy in uncertain times.
