Current Developments Surrounding Morgan Stanley's Shares
Morgan Stanley's (NYSE: MS) shares have jumped over 30% this year. This growth outpaces that of rival Goldman Sachs, whose shares have climbed over 40% during the same period. So, what factors are propelling MS's share price upward?
Morgan Stanley's financials have been robust. In the third quarter, the company's earnings skyrocketed by 32% compared to the previous year, reaching approximately $3.2 billion. Revenue also rose, hitting $15.4 billion, up from $13.3 billion in the year-ago quarter. The Fed's decision to lower interest rates since September has encouraged businesses to reenter the capital markets, boosting investment banking revenues and equity and fixed-income underwriting activities.
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Morgan Stanley has been diversifying its business in recent times, shifting its focus towards money management and away from investment banking and trading, which are typically subject to significant cyclicality. This move has allowed the company to secure more steady revenue streams through recurring fees. In the third quarter, the total assets in the Wealth and Investment Management divisions surpassed $7.5 trillion, primarily due to rising stock market valuations and increased inflows. Wealth Management revenues increased by 14% to $7.3 billion, with pre-tax income for the segment hitting a record high of $2.1 billion.
However, MS's share price growth over the past 4 years has been erratic and has largely mirrored the movements of the S&P 500. The stock returned 47% in 2021, fell 10% in 2022, and rose 14% in 2023.
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The election of Donald Trump for a second term as U.S. president has sparked optimism in the financial sector. Investors are betting that Trump's deregulation focus could result in a more lenient approach to bank oversight, potentially increasing revenues through higher deal volumes, lending activity, and potentially lower compliance costs. Furthermore, Trump's support for tax cuts could also positively impact the bottom lines of companies like Morgan Stanley and its clients. Additionally, the end of quantitative tightening by the U.S. Fed will improve liquidity in the system and reduce financing costs, both of which should boost capital markets activity, asset valuations, and wealth management growth. Morgan Stanley has also predicted a resurgence in IPOs and M&A activity in the near future, with potentially larger companies being involved. We currently value MS stock at $103 per share. To learn more about our analysis of *Morgan Stanley’s valuation*, visit our analysis page.
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Morgan Stanley's strong financial performance has significantly contributed to its increased revenue, with third-quarter revenue reaching $15.4 billion, a significant leap from the previous year's $13.3 billion. This revenue growth, coupled with the company's robust earnings of $3.2 billion, has positively impacted Morgan Stanley's valuation, leading to an increase in MS revenue.
The Trefis analysis currently values Morgan Stanley's stock at $103 per share, primarily based on its robust financial performance and positive market outlook, such as the potential for increased deal volumes, lending activity, and lower compliance costs due to political changes and improved economic conditions.
