Morgan Stanley’s stock (NYSE: MS) has gained 16% YTD, as compared to the 7% increase in the S&P500 over the same period. Further, the stock is currently trading at $99 per share, which is just below its fair value of $100 – Trefis’ estimate for Morgan Stanley’s valuation. The investment bank topped the street expectations in the fourth quarter of 2022, despite a 12% y-o-y drop in net revenues to $12.75 billion. The top line suffered due to a 49% decrease in investment banking, a 24% drop in equity trading, and a 17% decline in the investment management divisions. However, the effect was somewhat offset by a 6% increase in wealth management and a 15% rise in the FICC (fixed income, currency, & commodity) trading segments. Notably, the wealth management revenues benefited from improvements in interest rates and loan growth. On the cost front, the non-interest expenses witnessed an unfavorable surge in the quarter due to a 2% rise in compensation expenses and a 3% increase in non-compensation expenses. Overall, the adjusted net income was reduced by 41% y-o-y to $2.1 billion.
The company posted total revenues of $53.67 billion in the full year 2022 – down 10% y-o-y. It was driven by an 18% decline in the institutional securities segment and a 14% drop in the investment management unit. The institutional securities revenues were down due to lower investment banking and equity trading revenues, partially offset by a 20% rise in the FICC trading business. Altogether, the adjusted net income decreased 28% y-o-y to $10.5 billion. It was partly because of lower revenues and partly due to higher non-interest expenses as a % of revenues.
Moving forward, we expect the same momentum to continue in Q1 2023. All in all, Morgan Stanley’s revenues are forecast to remain around $56.6 billion in FY2023. Additionally, MS’s adjusted net income margin is likely to see some recovery to 21% in the year, leading to an adjusted net income of $11.77 billion and an annual GAAP EPS of $7.23. This coupled with a P/E multiple of just below 14x will lead to a valuation of $100.
|S&P 500 Return||1%||7%||84%|
|Trefis Multi-Strategy Portfolio||1%||13%||256%|
 Month-to-date and year-to-date as of 2/7/2023
 Cumulative total returns since the end of 2016