What Is The Upside Potential For Morgan Stanley’s Stock?

Morgan Stanley (NYSE:MS) is a global investment bank which mainly deals in four business segments: advisory & underwriting services (investment banking), sales & trading, investment management and wealth management. Trefis has a price estimate of $55 for Morgan Stanley’s stock – representing a potential upside of 20% for the company’s stock. Morgan Stanley’s earnings for the third quarter were a surprise, with the bank beating consensus estimates for both revenues and earnings by a margin. More importantly, the bank’s earnings bucked the trend seen this quarter for the largest U.S. banks wherein those with sizable traditional banking operations (like Citigroup) performed better than those reliant more heavily on investment banking activities (like Goldman).

We have detailed the key components of Morgan Stanley’s Valuation in an interactive dashboard, along with our forecast for the full-year 2019.

The stock price estimate can be divided into 4 factors: Stock Price = (Total revenue x Net income margin / No. of shares outstanding) x P/E Ratio

#1 Estimating Morgan Stanley’s Total Revenues

• Morgan Stanley is expected to report $40.1 billion in Total Revenues for 2019, which is at the same level as 2018.
• Institutional Securities revenues are expected to decrease by 2% y-o-y to $19.6 billion, offset by 14% jump in investment management and 1% growth in Wealth Management revenues.
• Morgan Stanley is the industry leader in equity trading space and drives more than 20% of its revenues from it. Owing to the negative market conditions and its significant dependence on trading, the bank is expected to report a decline of 6% in the segment revenues.
• Further, equity underwriting & debt origination revenues are expected to drop by 4% y-o-y.

Our interactive dashboard for Morgan Stanley details trends in revenues for Morgan Stanley’s operating segments along with our forecast for the next three years

#2 Deriving Morgan Stanley’s Net Income Figure

• Morgan Stanley is expected to have a Net Income of $8 billion in 2019 which is 3% less than the previous year.
• This would be driven by 50 bps drop in net income margin from 20.5% in 2018 to 20% in 2019, due to a slight increase in total expenses despite revenues remaining unchanged.
• We expect the effective tax rate to slightly decrease in the current year.

#3 Deriving Morgan Stanley’s EPS Figure

• Morgan Stanley has set aside a sizable amount of cash each year to repurchase shares and to boost shareholder returns. Its share repurchase is likely to touch $5.4 billion for the full year 2019.
• This would enable the bank to report an EPS figure of $4.95 in 2019.

#4 Estimating Morgan Stanley’s Share Price

• We expect Morgan Stanley to achieve earnings of $4.95, which coupled with a P/E multiple of 11x works out to a price estimate of $55.
• Details about how Morgan Stanley’s P/E multiple compares with peers JPMorgan, Citigroup and Goldman Sachs is available in our interactive dashboard.

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams| Product, R&D, and Marketing Teams
All Trefis Data
Like our charts? Explore example interactive dashboards and create your own.