On Wednesday, BofA Securities updated its outlook on Morgan Stanley (NYSE:MS), raising the price target to $120 from the previous $106 while maintaining a Buy rating on the stock. The adjustment follows Morgan Stanley's second-quarter 2024 earnings, which surpassed expectations. The financial institution reported an adjusted earnings per share (EPS) of $1.88, outperforming the BofA Securities and consensus estimates of $1.73 and $1.65, respectively.
The earnings beat was attributed to a significant increase in investment banking activity, which saw a 51% year-over-year growth compared to the forecasted 23%, and robust trading performance, with an 18% year-over-year increase versus the anticipated 7%. Despite these strong figures, Morgan Stanley's wealth management segment underperformed, with revenues falling 1% compared to consensus estimates, which may have dampened the stock's response to the earnings report.
BofA Securities also revised its forecast for Morgan Stanley's future earnings, increasing the estimated EPS for the fiscal years 2024 and 2025 to $7.09 and $7.65, up from the previous $6.90 and $7.50 estimates. The price objective was updated by applying a roll forward price objective methodology to 2025 from 2024, balancing the price-to-2025 estimated earnings per share and the price-to-year-end 2025 estimated tangible book value.
In determining the new price target, BofA Securities has assigned a 16.5 times multiple to the projected 2025 earnings and a 2.5 times multiple to the projected year-end 2025 tangible book value. These multiples reflect a change from the prior 19.5 times and 1.8 times, respectively. The revised price target suggests a positive outlook for Morgan Stanley's stock performance in the coming period.
In other recent news, Morgan Stanley has seen a significant surge in Q2 earnings, largely driven by solid performance in equity trading and investment banking activities.
The financial giant reported an adjusted EPS of $1.82, surpassing Evercore ISI's estimate of $1.59. The bank's net income for the quarter was $3.1 billion, a substantial increase from the $2.2 billion recorded in the same period last year. This profit boost was primarily attributed to a 51% rise in investment banking revenue, reaching $1.62 billion for the quarter.
Morgan Stanley, along with other Wall Street banks such as Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS), experienced a boost in their second-quarter earnings, largely driven by robust equity trading performance. Evercore ISI and Citi have provided positive feedback on these developments, with Evercore raising its price target for Morgan Stanley to $115 and maintaining an Outperform rating, while Citi reaffirmed its Neutral rating.
Morgan Stanley also announced plans to increase rates on certain advisory sweep deposits, following similar actions by competitors. The impact of these adjustments on the company's high-margin revenues within the Wealth Management sector is yet to be fully understood. In other developments, Morgan Stanley is part of the advisory banks for Hyundai Motor (OTC:HYMTF)'s upcoming initial public offering (IPO) in India, projected to earn up to $40 million in fees.
On the downside, the bank reported a decrease in investments in U.S. software stocks by global hedge funds to new multi-year lows, as part of a broader sell-off in the technology sector.
These are the recent developments in the financial sector.
InvestingPro Insights
Following the upbeat assessment by BofA Securities, Morgan Stanley (NYSE:MS) continues to demonstrate financial robustness as highlighted by real-time data from InvestingPro. With a market capitalization of $171.97 billion and a P/E ratio of 17.36, the company's valuation reflects its standing in the capital markets industry. The adjusted P/E ratio for the last twelve months as of Q2 2024 stands at 16.65, indicating a slight discount compared to the current P/E ratio. Morgan Stanley has also experienced a revenue growth of 5.5% over the last twelve months as of Q2 2024, showcasing its ability to increase its earnings.
InvestingPro Tips suggest that Morgan Stanley has been a consistent performer, raising its dividend for 10 consecutive years and maintaining dividend payments for 32 consecutive years, which could be appealing for income-focused investors. Additionally, the stock is trading near its 52-week high, with a price that is 97.36% of the 52-week high, and has shown a strong return over the last three months with a 19.01% price total return. However, the RSI suggests the stock is in overbought territory, and it is trading at a high P/E ratio relative to near-term earnings growth, which may warrant caution for potential investors looking for immediate growth opportunities.
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