Morgan Stanley Reports Record Full-Year Net Revenue
The organic growth for the narrow-moat firm is dependent on market returns.
Narrow-moat Morgan Stanley (MS) reported record full-year net revenue, with organic growth in the next year or two mainly depending on market returns adding to client assets. The company reported net income to common shareholders of $10.5 billion, or $6.46 per diluted share, on $48 billion of net revenue. Net revenue increased 16% from the previous year with broad-based revenue growth across investment banking, trading, and investment management. Return on tangible common equity was 15.2% for the year. We anticipate that our current $56 fair value estimate for Morgan Stanley could increase upward of 10% as we factor in stronger-than-expected growth in client assets.
Given likely modest headwinds in investment banking revenue in 2021, near- to medium-term growth is more dependent on the company’s wealth and investment management businesses. While net revenue growth in 2020 was broad-based, areas of particular strength included equity underwriting, which increased about $1.4 billion (81%); equity trading, which increased $1.7 billion (22%); and fixed-income trading, which increased $3.3 billion (59%). While investment banking executives are optimistic about the near-term sustainability of underwriting and acquisition advisory revenue, the abnormally high trading revenue in 2020 will be tough to grow from. Quarterly fixed-income trading revenue in 2020 was about 67% higher than the 2018 to 2019 quarterly average. Furthermore, fourth-quarter 2020 fixed-income trading revenue was 30% lower than the average of the first three quarters of 2020, showing a significant slowdown. Equity trading revenue remained strong in the fourth quarter, but trading volume in 2020 were likely abnormally high due to high market volatility from COVID-19 and the subsequent strong market recovery. With some reset of institutional securities revenue lower, the wealth and investment management businesses, which are about half of net revenue, will have to fill the hole.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.