UBS analyst Brennan Hawken has downgraded the stock rating of Morgan Stanley (NYSE:MS) from buy to neutral today, Wednesday. This decision comes despite Morgan Stanley’s successful transition to a wealth management-centric model and its leading growth profile among wirehouse peers. Hawken has also significantly reduced the firm’s price target from $110 to $84, suggesting a modest 4.8% potential increase over the next year.
Morgan Stanley faces several headwinds that have contributed to this downgrade. These include deposit sorting or yield-seeking behavior by clients, intense talent competition, and a challenging revenue environment. Deposit sorting, where clients reallocate funds between accounts in pursuit of higher yields, is slowing down. The end of this practice and its subsequent impact on growth remain uncertain.
The bank’s Institutional Securities Group (ISG) is particularly affected by rising interest rates, with the prospects of green shoots supporting profitability diminishing. Despite these challenges, Morgan Stanley’s stock rose 0.5% in premarket trading today. The company has a market capitalization of $139.94 billion and a P/E ratio of 13.97. The company’s revenue for the last twelve months stands at $53.19 billion, with a gross profit of $46.09 billion.
Contrary to the FactSet consensus estimate that projected Q3 earnings at $1.31 per share, Hawken revised his forecast downwards to $1.26 per share. This aligns that 6 analysts have revised their earnings downwards for the upcoming period. He also trimmed his earnings projections for the full years of 2023, 2024, and 2025 further. The new estimates for 2024 and 2025 are $7.10 and $8.25 per share respectively.
The neutral rating given by Hawken aligns with the SA Quant rating at Hold, indicating that the stock is fairly priced at this point. Fair Value estimate of $77.23. Despite a challenging environment, it’s worth noting that Morgan Stanley has been a prominent player in the Capital Markets industry. The company has also maintained dividend payments for 31 consecutive years, showcasing its financial stability. For more insights like these, consider product that includes additional tips.
