Morgan Stanley (NYSE: MS) is scheduled to report its fiscal Q4 2021 results on Wednesday, January 19, 2022. We expect Morgan Stanley revenues to be in-line with the consensus estimates, while earnings are likely to miss the expected figure. The bank posted better than expected results in the last quarter, with total revenues increasing 26% y-o-y to $14.8 billion. It was led by a significant jump in investment banking, equities trading, and wealth management businesses. While investment banking derived its growth from higher mergers & acquisitions (M&A) activity, followed by an increase in underwriting deal volumes, equity trading revenues benefited from higher trading volumes. Similarly, an increase in total client assets was the primary reason behind the growth in wealth management revenues – total assets increased 16% to $4.6 trillion between December 2020 and September 2021. We expect the fourth-quarter results to follow the same trend.
We estimate Morgan Stanley’s valuation to be around $111 per share which is 12% above the current market price. Our interactive dashboard analysis on Morgan Stanley’s Earnings Preview has more details.
(1) Revenues expected to be marginally ahead of the consensus estimates
Morgan Stanley’s revenues for full-year 2020 grew 16% y-o-y to $48.2 billion. It was due to growth in institutional securities and wealth management revenues.
- The institutional securities segment, which contributes close to 50% of the total revenues, grew 27% y-o-y in 2020. This was due to a significant jump in investment banking and sales & trading businesses. While investment banking grew on the back of higher deal volumes, sales & trading benefited from unusually high trading volumes in the year. The same pattern was observed in the first three quarters of 2021, with cumulative institutional securities revenues increasing 19% y-o-y to $23.2 billion. Markedly, the investment banking and equity trading revenues grew 60% y-o-y and 16% respectively over the same period, partly offset by an 11% drop in the FICC (fixed income, currency, and commodity) trading. We expect the fourth-quarter results to be on similar lines.
- The wealth management segment posted a 7% y-o-y rise in 2020, mainly driven by 48% y-o-y growth in total client assets to $3.99 trillion. Notably, the bank integrated the brokerage giant E*TRADE in October 2020, giving a significant push to its asset base. Further, the segment’s cumulative nine months revenues increased 34% y-o-y to $18 billion in 2021. This was partly due to the boost in total client assets, thanks to the E*TRADE deal, and partly due to organic growth in assets over the first three quarters. We expect the same trend to continue in the fourth quarter.
- Overall, we expect Morgan Stanley’s revenues to remain around $59.8 billion for FY2021.
Trefis estimates Morgan Stanley’s fiscal Q4 2021 revenues to be around $14.62 billion, in-line with the $14.60 billion consensus estimate. We expect the institutional securities and wealth management divisions to drive the fourth-quarter results.
Moving forward, we expect the investment banking and sales & trading revenues to normalize in the subsequent quarters, with recovery in the economy. However, the wealth management division will continue to drive growth. Our dashboard on Morgan Stanley’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
2) EPS is likely to miss the consensus estimates
Morgan Stanley Q4 2021 adjusted earnings per share (EPS) is expected to be $1.86 per Trefis analysis, almost 4% below the consensus estimate of $1.94. The bank’s adjusted net income figure increased 23% y-o-y to $10.5 billion, mainly due to higher revenues and lower expenses as a % of revenues. Further, the same trend continued in the first three quarters of 2021. Notably, the cumulative nine months adjusted net income grew 52% y-o-y to $11 billion. We expect the same trend to drive the fourth-quarter results. Overall, Morgan Stanley is likely to report an annual EPS of $7.88 for full-year 2021, as compared to $6.55 in 2020.
(3) Stock price estimate 12% more than current market price
We arrive at Morgan Stanley’s valuation, using an EPS estimate of around $7.88 and a P/E multiple of just above 14x in fiscal 2021. This translates into a price of $111, which is 12% more than the current market price of close to $99.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-2%||-2%||108%|
|Trefis MS Portfolio Return||-7%||-7%||264%|
 Month-to-date and year-to-date as of 1/18/2022
 Cumulative total returns since the end of 2016
Market Beating Portfolios
See all Trefis Price Estimates
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.