Morgan Stanley’s stock (NYSE: MS) has lost 13% YTD, which is at par with the decline in the S&P500 over the same period. The decline was primarily due to record high inflation numbers and the Russia-Ukraine crisis.
The stock is currently trading at $85 per share, which is 21% below its fair value of $108 – Trefis’ estimate for Morgan Stanley’s valuation. The bank posted better than expected results in the first quarter. It reported total revenues of $14.8 billion – down 6% y-o-y, driven by an 11% drop in the institutional securities segment. The segment suffered due to a 37% drop in the investment banking business and stagnant fixed-income trading revenues, partially offset by higher equity trading revenues. Investment banking was down due to the uncertain market conditions, which took a toll on underwriting deal volumes. Overall, the adjusted net income declined 11% y-o-y to $3.5 billion in the quarter.
The company’s revenues increased 23% y-o-y to $59.8 billion, with each of the three segments (investment management, wealth management, and institutional securities) reporting growth. The institutional securities revenues improved 13% y-o-y driven by higher investment banking and equity trading revenues, partially offset by lower fixed-income trading income. Further, the investment management unit witnessed a jump of 67% in the year, thanks to the acquisition of Eaton Vance and positive flows across all asset classes. Similarly, the wealth management revenues grew 27% y-o-y due to the organic growth in the year and the E*TRADE acquisition in the last quarter of 2020. Altogether, the adjusted net income increased 39% y-o-y to $14.6 billion.
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The Federal Reserve increased the benchmark interest rates by half a percentage point on Wednesday, in addition to the quarter percentage point increase in March. The rates are expected to see multiple positive revisions over the coming months. While the move will likely benefit the net interest margin of lenders in 2022, the loan growth is anticipated to remain unimpressive. Further, investment banking and sales & trading revenues are likely to normalize with the recovery in the economy. On the flip side, client assets are likely to see continued growth. Overall, Morgan Stanley’s revenues are expected to remain around $56.7 billion in FY2022. Additionally, MS’s adjusted net income margin is likely to see 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.
|S&P 500 Return||0%||-13%||85%|
|Trefis Multi-Strategy Portfolio||0%||-17%||227%|
 Month-to-date and year-to-date as of 5/6/2022
 Cumulative total returns since the end of 2016