MS Stock Outlook: Morgan Stanley Making Money Moves

This MS stock outlook article was written the I Know First research team.


“It’s been an extraordinary decade, starting with living through the financial crisis, being promoted to CEO in an almost-battlefield promotion, and then having to make some very, very difficult choices, the results of which wouldn’t be fully known for some years”

James P. Gorman, Morgan Stanley CEO


  • Recession indicators including an inverted treasury yield curve do not bode well for the stock market as a whole. 
  • Within the Financial Services Industry, Morgan Stanley is stable and ready for growth. 
  • Passing the Federal Reserve Stress Test, recent insider transaction, and Morgan Stanley’s acquisition of Solium are paving the way to continued growth. 
  • Morgan Stanley’s financial statement supports a long-term bullish outlook, with a potential share-price of $53.86 in one year’s time.

Morgan Stanley logo – Source: Wikimedia

Market Overview: Inverted Yield Curve Causes Concern

Fears of economic slowdown are dominating today’s market due to geopolitical and general economic concerns. Treasury notes face an inverted yield curve, where short term interest rates are higher than long term interest rates – a historical warning of an economic slump. Banks generally charge borrowers higher long-term interest and give depositors smaller long-term interest rates to earn net interest income (NII) and improve their net interest margin (NIM). As the yield curve inverts, however, the difference between short and long-term rates decreases, lowering growth of NII and causing a decline in NIM. In this concerning economic environment, Morgan Stanley (MS) is a good choice for investors due to its long-term fundamentals. 

These same economic concerns have prompted expectations that the Federal Reserve will cut interest rates at its next meeting. Morgan Stanley Chief Cross Asset Strategist Andrew Sheet explains that investors may face volatility due to Federal Reserve actions: “While rate cuts have been positive for equity markets historically, there are times when the Fed’s cuts don’t work. Specifically, if the Fed is beginning a new full-blown rate cycle, equity markets tend to respond negatively until the Fed can get ahead of the slowdown”. If the U.S. economy is entering a recession, stocks tend to view initial interest rate cuts poorly. Andrew Sheet states, “We think the risk of a U.S. recession starting in the next 12 months is high, as high as it’s been since 2007…it is likely to have a negative impact on stocks over the next three to six months”. As a result, investors should look to stocks such as MS which can succeed in an environment where other stocks struggle due to its strong competitive position, recent business updates, and secure financials.

Inverted Treasury Yield Curve before various recessions, and same shape of Treasury Yield Curve today  – Source: Wikimedia

Morgan Stanley Competitive Position in Investment Services

Morgan Stanley belongs to the Investment Services industry, which is currently facing a deterioration in revenues. While Morgan Stanley’s sales fell by 7.14% in I. Quarter 2019 from the same quarter a year ago, the industry as a whole fell even more, recording revenue deterioration of -7.72%. Morgan Stanley also fares better than its peers, with a PE ratio about the Investment Services industry average. Similarly, Morgan Stanley’s PEG ratio is 0.28 while the industry average is 0. Morgan Stanley is a better value than its competitors: Morgan Stanley’s Price to Sales ratio is 1.85, compared to the industry average at 2.65. Furthermore, while Morgan Stanley’s net profit margin of 23.99% currently ranks 46th in the Investment Services industry, 398th in the Financial sector, its profitability is on the rise. Due to increases in demand and cost control, operating margin grew in the first quarter of 2019 to 28.73% from 21.72% in the fourth quarter of 2019. As a result, compared to its competitors, Morgan Stanley is a stable and growing investment. 

Notable Morgan Stanley competitors  – Source: Nigeria Banks

Morgan Stanley Business Growth Overview

Morgan Stanley provides investment banking products and services to various clients including individuals, governments, financial institutions, and corporations. It was founded in 1935, and is headquartered in New York, NY. Morgan Stanley’s segments include Investment Management, Wealth Management, and Institutional Securities. Investment Management develops equity, fixed income, alternative investments, real estate, and merchant banking strategies. Wealth Management offers advisory services over a plethora of investment including equities, options, futures, currencies, commodities, etc. Finally, Institutional Services provides advice and capital-raising to institutional investments. Morgan Stanley is an industry leader in both wealth management and investment banking.

CEO James P. Gordon has led Morgan Stanley since 2010. He first joined immediately before the 2008 financial crisis. For the six weeks after the crisis began, he slept on office sofa to help the firm fight for survival, illustrating his early dedication to the company. Over a decade later, Gorman leads Morgan Stanley to record profits, including two consecutive quarters of revenue over ten billion for the first time since 2007 due to an increase in the bank’s equities division. Because of Gorman’s early risky decision to focus on wealth management, Morgan Stanley’s profits are much more stable. Six years ago, when the bank struggled to profit at all, two-thirds of its net income was due to security trading. Now, wealth management is responsible for almost half of Morgan Stanley’s net income because of Gordon. 

Current events are paving a path for future success for Morgan Stanley. On June 27th, Morgan Stanley passed the Federal Reserve Stress Test, prompting regulators to allow Morgan Stanley to raise dividends from thirty cents to thirty-five cents and buy back six billion in stock shares. Morgan Stanley’s stock went up 1.2% on June 27th, and the entire financial sector went up 1% due to multiple banks passing the stress test. Morgan Stanley insiders are also expecting further success. On April 18th, Daniel Simkowitz, Head of Investment Management added 7,000 shares of Morgan Stanley to his portfolio, reaching a total of 193,089 shares of the company. 

Overall, the Federal Reserve Stress Test and recent insider actions stress Morgan Stanley’s continuing potential for success. It is important to note that Morgan Stanley will be publishing new quarterly results on July 18th, which will also be an important indicator of future performance.

Wealth Management as a percentage of Morgan Stanley’s revenue, illustrating the shift in company focus since the financial crisis – Source: The Economist

Morgan Stanley – Solium Acquisition

On May 1st, 2019, Morgan Stanley Completed its Acquisition of Solium, a leading global provider of software-as-a-service (SaaS) for equity administration, financial reporting and compliance. Morgan Stanley reports that ,”With this acquisition, Morgan Stanley is positioned to be an industry leader in Workplace Wealth Solutions, bringing together a major stock plan administration platform with a leading Wealth Management business”. Solium has 3,000 stock plan clients and one million participants including Instacart, Levi Strauss, Shopify and Stripe along with other fast-growing private companies and public companies. Gorman, Morgan Stanley CEO, explains, “The acquisition provides Morgan Stanley with broader access to corporate clients and a direct channel to their employees, as well as a greater opportunity to establish and develop relationships with a younger demographic and service this population early in their wealth accumulation years. This acquisition enhances Morgan Stanley’s client acquisition efforts, complementing its Financial Advisory channel. By completing its acquisition of Solium, Morgan Stanley is on track to continue its leadership in the  workplace with stock plan administration and financial solutions.

Solium logo – Source: Wikimedia

Morgan Stanley Financial Position Analysis

Morgan Stanley’s financials demonstrate why it is likely to be a bullish long-term investment. First, Morgan Stanley’s growth is strong, with revenues experiencing a compounded annual growth rate of 4% over the last five years. Moreover, continuing focus on wealth management through the acquisition of Solium Capital, higher interest income, and trading will continue to increase revenue. Next, Morgan Stanley has strong profitability. Its current Operating Margin is +22.68, and its Net Margin is 16.40%. Consequently, Morgan Stanley is generating more profit after expenses than its peers. Morgan Stanley has a strong position within its industry and offers greater shareholder return. Furthermore, Morgan Stanley’s profit margin has been consistent or even increasing over the past three years (Current year: 17.43%, Last year: 14.00%, Two years ago: 15.76%) – a sign of good management and overall business health. 

Based on Morgan Stanley’s balance sheet, Morgan Stanley is able to meet its short term commitment with its cash holding, and its cash cover its long term commitments. Morgan Stanley also has a low level of unsold assets. Debt is covered by short term assets: assets are 2.6x debt. The level of debt compared to net worth has decreased over the past five years from 448.3% to 352.8%. Current annual income from Morgan Stanley dividends is 2.67, which is estimated to increase to 3.21%  next year. Over the past decade, dividends per share have increased. Paid dividends are covered by earnings: 3.9x coverage. Dividends after three years are also covered by earnings at 3.6x coverage. Morgan Stanley’s cash flow is $1.76 per share. Positive cash flow is used for internal expansion, acquisitions, and dividend payments. A company that generates revenue like Morgan Stanley is able to fund such actions without borrowing further funds. 

Morgan Stanley’s year on year earnings growth rate has been positive over the past 5 years, with 1-year earnings growth exceeds its 5-year average (26.3% vs 16.8%). Moreover, Morgan Stanley’s annual earnings growth has been 18.1%, higher than the industry average of 14.7%. A projected EPS growth rate of 6.7% for 2019 and 8.5% for 2020 highlights that this growth is expected to continue. The high long-term projected earnings growth rate of 9% highlights the  potential for high shareholder reward. However, Morgan Stanley Chief Cross Asset Strategist Andrew Sheet warns that investors may face volatility: “[Companies’] ability to forecast their earnings over the intermediate term has proven to be [in]accurate. Part of this is due to their ability to see macro-slowdowns, or accelerations. Therefore, with our view that a recession is looking more likely over the next twelve months, it’s also likely that company earnings guidance for the next 12 months is too high. Given the significant deterioration of the macro-date in the past few months, and the fact that we are past the halfway point for the year, we suspect that companies may feel the need to lower their optimistic full-year earnings guidance provided back in January”.

Finally, MS is a good value stock. Morgan Stanley insiders own 24.60% of the company’s outstanding shares, showcasing that insiders are confident in the company’s future performance. Morgan Stanley has also not been significantly increasing the number of shares outstanding, so is diluting the stock. Morgan Stanley’s P/E ratio of 8.80 and P/B ratio of 0.98 are below the industry averages of 11.22 and 1.84, so MS looks undervalued. MS is also good value based on its earnings with a PE  of 9.5x, as opposed to the capital market average of 38.3x and market PE of 17.9x. Analysts agree that MS is a good investment. Of eighteen analyst reports, three suggest a strong buy, fourteen suggest buying, nine suggesting holding, and only one suggests selling leading to a consensus of buy. The current price of MS is $43.31, while the price target average is higher at $53.86.

Analyst Recommendations for Morgan Stanley – Source: Yahoo Finance


Morgan Stanley is currently trading at $44.43 a share, a decrease of a year-to-date high of $48.46 on April 29th. While the markets as a whole including the Investment Industry may struggle as recession fears continue, Morgan Stanley’s strategic focus on wealth management including its recent acquisition will continue to secure its growth.

The I Know First research team has a bullish outlook for MS, at the analyst price target average of $53.86 due to the stock being undervalued and the potential for continued company growth. 

Current I Know First MS Stock Forecast

I Know First’s machine learning algorithm has a positive outlook for MS. The stock is bullish over the 1 month, 3 months and 1-year horizons. For the 1-year horizon, the signal is strongest at 151.09  with a predictability indicator of 0.82.

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Please note-for trading decisions use the most recent forecast.