Morgan Stanley (MS) is one of the biggest financial institutions in the United States and globally, with a $176.13 billion market cap. It is ranked #61 on the Fortune 500 list and has more than $1.50 trillion worth of assets under management. Despite the Archegos sell-off-related losses in March, MS’ revenues increased 26.6% year-over-year to $58.27 billion in the trailing 12 months.

Shares of MS have gained 43.2% over the past year, outperforming the benchmark S&P 500 index’s 27.2% over this period.

Here’s what could shape MS’ performance in the upcoming months:

Hawkish Monetary Policy

The Fed has accelerated its tapering of bond purchases and has projected at least two interest rate hikes in 2022. MS stands to benefit from the higher interest payments due to such anticipated interest rate hikes. However, the demand for loans and margin trading is expected to slump due to higher costs as the economic recovery peaks. Moreover, the anticipated market correction this year might result in lower wealth management revenues.

Analysts expect MS’ revenues to decline 3.2% in the fiscal 2022 first quarter (ending March 2022) and marginally in the fiscal 2022 second quarter (ending June 2022). Consensus EPS estimates indicate an 11.2% slump in the next quarter and a 1.2% decline in the fiscal 2022 second quarter.

Lawsuits Regarding the Archegos Sell-Off

Several class-action lawsuits have been filed against MS by shareholders that incurred hefty losses due to Archegos Capital Management‘s asset sell-off earlier this year. The lawsuits allege that MS acted on material non-public and inside information to liquidate Archegos’ holdings due to margin call pressure, thereby avoiding billions in losses.

Frothy Valuation

In terms of forward non-GAAP P/E, MS is currently trading at 12.37x, 9.6% higher than the industry average of 11.29x. The stock’s forward non-GAAP PEG and Price/Book multiples of 2.54 and 1.79 are 150% and 43.3% higher than the industry averages of 1.02 and 1.25, respectively.

In addition, MS’ trailing-12-month Price/Cash Flow ratio of 21.4 is 147% higher than the industry average of 8.66.

POWR Ratings Reflect Uncertainty

MS has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MS has a grade of C for Sentiment, Value, and Stability. Analysts expect the company’s revenues and EPS to decline 2.2% and 5.6% year-over-year to $1.21 trillion and $154.28, respectively, in 2022. This justifies the Sentiment grade. Also, the stock’s higher-than-industry valuations and 1.53 beta are in sync with the Value and Stability grades, respectively.

Of the 22 stocks in the A-rated Investment Brokerage industry, MS is ranked #15.

In addition to the grades I’ve highlighted, view MS ratings for Growth, Quality, and Momentum here.

Bottom Line

As one of the largest international banks, MS is expected to maintain a stable growth trajectory over the long term. However, the looming macroeconomic uncertainty might cause MS’ financials to decelerate in the upcoming quarters, as consumer spending falters slightly due to the higher benchmark interest rates and Treasury yields. Thus, investors should wait until the broader market stabilizes before investing in the stock.

How Does Morgan Stanley (MS) Stack Up Against its Peers?

While MS has a C rating in our proprietary rating system, you might want to consider looking at its industry peers, Manning & Napier, Inc. (MN) and Piper Sandler Companies (PIPR), which have an A (Strong Buy) rating.

MS shares were trading at $101.04 per share on Monday afternoon, up $2.88 (+2.93%). Year-to-date, MS has gained 50.96%, versus a 28.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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