Wealth Management And Tech Investments Will Deliver Outstanding Growth And Transform The Firm Into A Global Powerhouse

Key Takeaways

• Overly optimistic capital markets recovery expectations could impact future Investment Banking revenues amid persistent macroeconomic headwinds.
  
• Global expansion in EMEA and Asia might falter due to adverse geopolitical or economic conditions, affecting international revenue growth.
  
• Morgan Stanley's strategic asset growth, technology investments, and global market adaptability position it for strong revenue growth and robust profitability amidst positive market conditions.

Catalysts

A financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals in the Americas, Europe, the Middle East, Africa, and Asia.

• Expectations of a multiyear capital markets recovery could be overly optimistic if macroeconomic headwinds persist, potentially impacting future Investment Banking revenues.
  
• Investments in technology and infrastructure, while necessary, could increase operational costs beyond current projections, potentially compressing net margins.
  
• Strategic focus on global expansion, especially in EMEA and Asia, might not yield expected returns if geopolitical or economic conditions deteriorate, affecting international revenue growth.
  
• Loan growth driven by mortgages and securities-based lending is anticipated, but if interest rate trends reverse, this could hinder the expected growth, impacting future net interest income.
  
• Although asset growth in Wealth Management is strong, continued shifts to lower-fee alternatives could pressure future earnings despite higher asset under management.

Morgan Stanley Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Morgan Stanley's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.2% today to 20.8% in 3 years time.
• Analysts expect earnings to reach $13.6 billion (and earnings per share of $8.66) by about December 2027, up from $10.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $16.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.5x on those 2027 earnings, down from 19.4x today. This future PE is lower than the current PE for the US Capital Markets industry at 24.1x.
• Analysts expect the number of shares outstanding to decline by 0.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Morgan Stanley Future Earnings Per Share Growth

Risks

• Morgan Stanley's strong financial performance, including $15.4 billion in quarterly revenues and a 17.5% return on tangible equity, indicates robust profitability and potential for resilient earnings going forward. This strength could sustain or even grow its revenue and earnings.
  
• The firm's strategic focus on asset aggregation, particularly in Wealth and Investment Management, has resulted in significant growth of client assets to $7.6 trillion, with a trajectory towards $10 trillion. This is anticipated to positively impact revenue generation and net margins.
  
• Investment and gains in global markets, such as share gains in the institutional franchise and strong performance in Asia and EMEA, reflect Morgan Stanley's ability to adapt and thrive in diverse economic conditions, which supports a favorable outlook for revenue growth and operating leverage.
  
• Morgan Stanley's ongoing investments in technology and efficiency measures across its businesses are expected to enhance profitability by improving operational efficiency and reducing costs, potentially maintaining or expanding net margins.
  
• Positive developments in global equity markets and increasing client engagement in Wealth Management, alongside durable growth strategies, suggest that Morgan Stanley is well positioned to capitalize on market opportunities, supporting revenue growth and strengthening earnings.

Valuation

• The analysts have a consensus price target of $126.67 for Morgan Stanley based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $142.0, and the most bearish reporting a price target of just $104.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $65.3 billion, earnings will come to $13.6 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of $127.59, the analyst's price target of $126.67 is 0.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.