Even on a red day for the major stock market indexes, Morgan Stanley (NYSE:MS) stock stood out today as a major loser. However, investors should probably chill out, as Morgan Stanley isn’t in huge trouble and even managed to surpass analysts’ third-quarter expectations. Hence, I am bullish on MS stock, and I’m fully prepared for a rebound when the market calms down.
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Morgan Stanley is a colossus of a financial institution. It’s a favorite among investment bankers, but that’s a problem for Morgan Stanley when the company’s investment banking revenue declines.
Still, informed investors should look at the big picture and not just one data point. Overall, Morgan Stanley is faring well amid challenging economic conditions. So, if you like stocks with relatively low P/E ratios (around 14x) and high dividend yields (now yielding 4.5%), Morgan Stanley stock might be right up your alley.
Morgan Stanley Can’t Catch a Break Lately
With MS stock finishing 6.8% lower for the day as I’m writing this, it certainly feels like Morgan Stanley is in the penalty box on Wall Street. However, this is really just part of a longer-term share-price decline that started in February.
For Morgan Stanley and other financial institutions, there’s been a double whammy of tough breaks in 2023. First, there was the regional banking crisis in March and April, which wasn’t a serious problem for Morgan Stanley’s business, but it dragged on the stock’s share price for a while.
On top of that, Morgan Stanley has had to deal with high interest rates. Sure, high rates are good for Morgan Stanley when the bank is loaning money and collecting interest payments. On the other hand, high interest rates tend to discourage business deals, mergers and acquisitions, and investment banking in general.
Certainly, UBS (NYSE:UBS) analyst Brennan Hawken had the impact of high interest rates in mind when he downgraded MS stock from Buy to Hold. Hawken also lowered his price target on Morgan Stanley shares from $110 to $84. So, again, lately, it feels like Morgan Stanley just can’t catch a break.
Morgan Stanley’s Results: Not as Bad as Expected
It’s not difficult to figure out why Morgan Stanley stock tumbled today. The culprit is its third-quarter 2023 financial report, which had a sore spot that bothered some investors.
Here’s the bad news. Morgan Stanley’s third-quarter investment banking revenue declined by 27% year-over-year to $938 million. This unfortunate result, to quote a Barron’s report, reflected “fewer deal completions.”
Nonetheless, Morgan Stanley CEO James Gorman envisions a brighter future with more dealmaking. “We are seeing increasing evidence of M&A and underwriting calendars that are building,” Gorman observed, hinting that more M&A activity should “materialize in 2024.”
Besides, the quarterly numbers weren’t all bad for Morgan Stanley. In fact, the company’s Q3 net revenue increased by 2.2% year-over-year to $13.3 billion, edging out the Street’s consensus estimate of $13.2 billion. At the same time, Morgan Stanley’s third-quarter earnings of $1.38 per share beat the consensus call for $1.31 per share.
Furthermore, Morgan Stanley’s Wealth Management net revenue increased by 5%, and the company’s Investment Management (not to be confused with Investment Banking) revenue grew by 14%. In other words, Morgan Stanley has problems to fix but isn’t a sinking ship by any means.
Is MS Stock a Buy, According to Analysts?
On TipRanks, MS comes in as a Moderate Buy based on 10 Buys and five Hold ratings assigned by analysts in the past three months. The average Morgan Stanley stock price target is $95.80, implying 27.9% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell MS stock, the most profitable analyst covering the stock (on a one-year timeframe) is Susan Roth Katzke of Credit Suisse (NYSE:CS), with an average return of 36.51% per rating and a 75% success rate. Click on the image below to learn more.
Conclusion: Should You Consider MS Stock?
The market shouldn’t have sold off Morgan Stanley stock to such an extreme degree, in my opinion. Morgan Stanley exceeded analysts’ forecasts, and if there’s an uptick in business dealmaking activity, big banks like Morgan Stanley should see a substantial revenue improvement.
Short-term traders might not favor MS stock right now, but I believe that investors ought to consider a position. Morgan Stanley is a banking giant with issues that it can overcome, and the market will realize this sooner or later. Plus its relatively low valuation and high dividend yield add to the bull case.
