Investment bank Morgan Stanley (NYSE: MS) stock nearly doubled in 2021 but might still be a cheap buy heading into 2022 with improved metrics. Pullbacks have been shallow for this top tier investment bank. The Company continues to blow out top and bottom line estimates growing its market share during and post-pandemic. The E*TRADE acquisition is further expanding its footprint in the wealth management, self-directed and retail investment and trading segment as assets grew by over $300 billion in new assets in the quarter. The Federal Reserve has signaled at least two interest rate hikes in 2022, which should improve interest margins at financials and banks. With shares trading at 12.5X earnings, the stock looks cheap. Prudent investors can watch for opportunistic pullback entries to gain exposure in shares of one or the world’s best run investment banks.
Q3 FY 2021 Earnings Release
On Oct. 14, 2021, Morgan Stanley released its fiscal third-quarter 2021 results for the quarter ending September 2021. The Company reported earnings per share (EPS) profits of $1.98 versus $1.68 consensus analyst estimates, a $0.30 beat. Revenues grew of 26.6% year-over-year (YoY) to $14.75 billion, compared to $13.95 billion. Morgan Stanley CEO James P. Gorman commented, “The Firm delivered another very strong quarter, with robust revenues and improved efficiency producing an ROTCE of 20%. We had standout performance of our integrated Investment Bank and record net new assets of $135 billion in Wealth Management. Year-to-date, our successful integrations of E*TRADE and Eaton Vance have supported growth of $400 billion in net new client assets across Wealth and Investment Management, bringing our total combined client assets to $6.2 trillion.”
Conference Call Takeaways
CEO Gorman set the tone, “The work we have done to integrate our businesses across the Investment Bank is clearly paying dividends. Of note, investment banking had its best quarter in history. And within that M&A also produced its own record quarter. Equities were extremely strong and fixed income was stable. The wealth management business, which includes E*TRADE now, of course, is growing assets at levels far beyond what we’ve seen. Through the first nine months, this business added over 300 billion of net new assets, compounding growth on a client asset base of over 4.6 trillion, and we believe this is going to be an economic engine for Morgan Stanley for decades to come. The majority of our advisors had positive net new assets year-to-date. And it’s this broad-based strength that’s key to driving these asset levels. We’re seeing momentum, though, across all our newer channels, self-directed and workplace. Self-directed client engagement remains elevated, US corporate soft claim wins increased over 90% versus last year. In the quarter, we continued to broaden our reach, especially Morgan Stanley at Work, where we now have in excess of 14 million unique relationships. While it’s early days, we believe that over time, Morgan Stanley at Work will be a meaningful growth driver for the overall business providing additional connectivity to a wider range of prospective clients for broader Wealth Management services. Investment Management. Fee-based asset management revenues were $1.5 billion in the quarter. By the way, that’s nearly tripled the average quarterly level of five years ago. At $1.5 trillion of assets under management represents a more diverse asset mix, further enhancing the range of bay we can provide clients. Expanded solutions and customization, sustainability, and value-added Fixed Income, along with our sizable and growing alternatives platform, position us well to capitalize on ongoing secular growth trends. Year-to-date net flows within Investment Management have exceeded $100 billion. Finally, as it relates to capital, we bought back 3.6 billion of stock, consistent with our overall capital plan, and doubled our dividends, thereby delivering shareholders a nearly 3% return. All that said, we’re not complacent in what is obviously a slightly more turbulent market environment. We do expect the Federal Reserve will begin tapering soon, and that will be followed by increasing rates in 2022. We remain optimistic about the firm’s position and business outlook, but we will exercise more caution if we see a significant uptick in volatility. Throughout, we remain committed to our core values that drive our culture and ensure we do business the right way. A final word on capital. As you know, SA-CCR, the Standardized Counterparty Credit Risk, regulatory changes beginning next year for the largest banks.” He concluded, “It impacts the calculation of counterparty credit risks and thus, risk-weighted assets. We’ve decided to early adopt in the fourth quarter. That, of course, increases RWAs and with that lowers the implied CET1 ratio. Our current CET1 ratio, which includes the impact of our recently doubled dividend and our buyback as of the third quarter is 16%. The pro forma impact of CECA, absent further mitigation, could theoretically reduce that by approximately 120 basis points. Of course, we have a lot of flexibility to mitigate, and that work has already begun. But early adoption allows us to pick up a benefit in the future which may itself offset a part of this impact over time.”
MS Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provide a precise view of the price action playing field for MS stock. The weekly rifle chart peaked near the $106.34 Fibonacci (fib) level before falling to the $94.35 area fib level initial bottom. The weekly rifle chart downtrend stalled as the 5-period moving average (MA) went flat at $98.25 followed by the 15-period MA at $99.64. The weekly stochastic crossed back up off the 30-band. The weekly Bollinger Bands (BBs) have been tightening with a falling upper BB at $106.81 and flat lower BB at $94.22. The weekly market structure high (MSH) sell triggers on a breakdown through $97.47. The daily rifle chart has been chopping flat with a flat 5-period MA at $99.21 and compressing BBs capping the range from $94.92 lower BB to the upper BB at $103.08. The daily stochastic is stalling at the 60-band. The daily market structure low (MSL) buy triggers on a breakout above $99.83. Prudent investors can watch for opportunistic pullbacks at the $96.23 fib, $94.35 fib, $92.28 fib, $89.06 fib, $87.00 fib, $84.72 fib, and the $83.61 fib level. The upside trajectories range from the $107.64 fib up towards the $126.11 fib level.
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