Morgan Stanley’s stock (NYSE: MS) has lost 9% YTD, as compared to the 17% decline in the S&P500 over the same period. Further, the stock is currently trading at $89 per share, which is 4% below its fair value of $93 – Trefis’ estimate for Morgan Stanley’s valuation. The investment bank missed the consensus estimates in the third quarter of 2022, with revenues decreasing by 12% y-o-y to $12.99 billion. This was driven by a 22% y-o-y drop in institutional securities and a 20% decline in the investment management segments. The institutional securities unit suffered due to a 55% decrease in investment banking revenues, followed by a 14% reduction in equity trading. On the flip side, the negative growth was partially offset by a 3% increase in wealth management revenues, which benefited from a 49% rise in the net interest income (NII). Overall, the adjusted net income decreased 30% y-o-y to $2.5 billion. It was partly due to lower revenues and partly due to higher expenses as a % of revenues.
The company’s top line fell by 10% y-o-y to $40.9 billion in the first nine months of 2022. Further, each of the three segments witnessed negative growth, with institutional securities leading the pack (down 15% y-o-y). This led to a 23% y-o-y drop in the adjusted net income to $8.4 billion.
Moving forward, we expect the investment banking and equity trading revenues to struggle in Q4, too. However, the NII, which improved by 18% y-o-y over the first three quarters, is likely to maintain its momentum. Altogether, Morgan Stanley’s revenues are estimated to remain around $53.9 billion in FY2022. Additionally, MS’s adjusted net income margin is likely to decrease from 24% to 21% in the year, leading to an adjusted net income of $11.37 billion and an annual EPS of $6.66. This coupled with a P/E multiple of just below 14x will lead to a valuation of $93.
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|S&P 500 Return||2%||-17%||76%|
|Trefis Multi-Strategy Portfolio||3%||-20%||218%|
 Month-to-date and year-to-date as of 11/18/2022
 Cumulative total returns since the end of 2016