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Morgan Stanley: Capital Markets-Centric Infrastructure Supports Superior Growth

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Morgan Stanley European Headquarters, London, UK

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Morgan Stanley (NYSE:MS) is simply a world finance slope pinch important operations successful trading, and wealthiness and plus management, signaling $53.67bn successful 2022 revenues alongside a nett income of $11.18bn.

Over nan past fewer years, Morgan Stanley has shifted their approach from a broad-based approach, historically aiming for marketplace stock successful verticals crossed nan financial industry, but now moving towards a streamlined strategy of installation crossed nan superior 'supply chain'.

Introduction

The slope segments itself into 3 superior divisions; Institutional Securities, which comprises finance banking, equity, and fixed income, generating $24.39bn successful 1Y revenues; Wealth Management, which generated its $24.42bn done customer plus travel fees and interest; and Investment Management, which generated $5.38bn successful 2022 revenues.

Morgan Stanley Segment Evolution

Morgan Stanley Strategic Update 2023

Morgan Stanley's accordant attraction connected unifying its financial platforms enables greater entree to superior and elasticity successful consequent capital allocation and gathering customer demands.

Valuation & Financials

General Overview

As aforementioned, Morgan Stanley has knowledgeable superior 1Y returns to some nan wide market, and their main rivals, Goldman Sachs (NYSE: GS).

Morgan Stanley (Dark Blue) vs nan Market & Goldman Sachs

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In spite of this outperformance, I judge Morgan Stanley has much room to run, owed some to yet continued underpricing arsenic good arsenic nan worth procreation and efficiencies their acquisitions look to yield.

Comparable Companies

The highly consolidated financial manufacture scenery leads to a accordant group of rivals successful nan industry; Goldman Sachs is simply a much fierce version of nan company, though precocious undergoing a divergent strategy (as I've outlined successful my Goldman Sachs article); JPMorgan Chase (NYSE: JPM) is nan largest cosmopolitan slope successful nan US; and Bank of America (NYSE: BAC) has a awesome beingness crossed financial platforms.

MS Relative Valuation

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As demonstrated above, connected an absolute multiples basis, Morgan Stanley is really somewhat overvalued comparative to peers. However, this apt reflects a much broad undervaluation of nan manufacture arsenic a whole, a merchandise of nan financial industry's sensitivity to liking complaint changes and inflationary pressures.

When identifying 3-year aliases 5-year value performance, successful summation to 5-year net growth, Morgan Stanley presents a superior worth proposition. Additionally, pinch their 3.19% dividend and greater 5-year dividend growth, Morgan Stanley besides enables an income-based investing approach.

This worth has been driven by nan inorganic maturation of their wealthiness guidance division, done nan purchases of E*TRADE and Eaton Vance.

Valuation

Morgan Stanley Gordon Growth Model

Morgan Stanley Gordon Growth Model (Morgan Stanley Q4 Earnings)

According to my Gordon Growth Model, Morgan Stanley should beryllium weighted astatine $111.43, a ~12.9% summation from today.

Dividend Information of MS

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Walking done my model, it assumes a RRR of 8.7%, successful statement pinch nan manufacture mean expected maturation rates. Additionally, nan expected dividend maturation complaint is successful statement pinch nan historical manufacture average, alternatively than Morgan Stanley's existent guardant dividend per stock maturation of 11.42%, accounting for imaginable regression successful dividend maturation owed to macro turbulence.

Sustained Vertical Expansion Leads to Resilience & Growth

While reputationally known for finance banking, a bulk of Morgan Stanley's maturation has been derived from its Wealth Management and Investment Management divisions- arsenic a consequence of caller acquisitions- successful which nan institution has seen pre-tax profits turn from $500mn to $6.6bn complete nan past 13 years.

Wealth Management Change successful Profit

Wealth Management Change successful Profit (Morgan Stanley Strategic Update 2023)

In attempting to do so, Morgan Stanley has expanded their entree to unit capital, frankincense expanding their AUM and their expertise to pull superior and put crossed each platforms.

Their description into wealthiness guidance has additionally facilitated important separator description , pinch Morgan Stanley experiencing 76.67% 5-year net growth.

MS Portfolio Shifts

Morgan Stanley Strategic Update 2023

We person thus, successful spite of nan summation successful nan national costs rate, seen accretive maturation successful deposits, pinch nan convexity of unit aliases organization aliases authorities aliases firm deposits successful different circumstances.

As such, Morgan Stanley has developed a firm strategy of semipermanent AUM growth, aiming for $1tn successful nett caller Wealth Management assets each 3 years successful spite of macro conditions.

Wall Street Consensus

Analysts mostly support my bullish cognition connected Morgan Stanley, forecasting an mean 1-year value summation of 5.45% to $102.00.

MS Price Forecast

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Though, owed to nan aforementioned sensitivity of financial companies to volatility nan minimum projected value is $84.00, down 13.16% from now.

Risks

Third-Party Risk

While Morgan Stanley is moving towards synchronizing their business done vertical integration, 3rd parties stay paramount to nan execution of Institutional Securities dealings; thus, immoderate vulnerability to marketplace nonaccomplishment done 3rd parties whitethorn person worldly impacts connected nan companies' expertise to behaviour business.

Continued Rate Rises

YoY, margins person declined ~13%, pinch this separator compression defended by nan extended emergence successful liking rates. Therefore, pinch higher liking rates reducing M&A activity and request for wealthiness and plus guidance services, it tin beryllium surmised that further complaint increases will only service to further inhibit profitability.

Financial Risks Based connected Illiquidity and Market Movement

With an expanding attraction connected exclusively superior market-centric activity, Morgan Stanley additionally increases counterparty consequence successful transactions, aliases nan inability to run efficaciously fixed nan broader market. And pinch a comparatively precocious debt-to-assets ratio, Morgan Stanley retains little elasticity successful specified an environment.

Conclusion

In nan short term, Morgan Stanley's resilient marketplace position, intermediate undervaluation, and separator maturation show nan company's expertise to run good successful a mediocre market.

In nan agelong term, nan company's attraction connected synergetic maturation driven by streamlined business practices and M&A promises precocious degrees of AUM maturation alongside consequent gross and profit description successful wealthiness and finance management.

This article was written by

Jishan Sidhu floor plan picture

I americium a Canadian business student focused connected value long-only articles and searching for high-value companies. I person an event-driven focus, evaluating really equities execute nether macro events, considering their financials and firm strategy supra each else.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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