Near-Term Goals Achievable for Morgan Stanley
We don’t anticipate making a material change to our fair value estimate, and we assess the shares as being fairly valued.
We believe that narrow-moat Morgan Stanley (MS) can meet its updated near-term financial goals, but we also believe that investors shouldn’t get carried away with the company’s long-term aspirational goals. The company ended 2019 with another consistent, good quarter. Morgan Stanley reported net income to common shareholders of $2.1 billion, or $1.30 per diluted share, on $10.9 billion of net revenue. Quarterly net revenue in 2019 averaged about $10.4 billion and ranged from $10.2 billion to $10.9 billion. While the company has built up its recurring revenue via the growth of its wealth and investment management segments, which now constitute about 50% of net revenue, its institutional securities business’ quarterly revenue in 2019 was in a tight range of $5 billion-$5.2 billion, demonstrating diversification benefits from different security types and geographies. Even the fixed-income trading business, which had been a sore spot for a number of years, earned over $1 billion of revenue each quarter. For the whole year, net revenue increased 3.3% to $41.4 billion, net income to common shareholders increased 3.5% to $8.5 billion, and the company had an adjusted return on tangible common equity of 12.9%. We don’t anticipate making a material change to our $51.50 fair value estimate, and we assess the shares as being fairly valued.
Morgan Stanley inched up its near-term financial goals while also laying out some longer-term aspirations. Assuming that the global economy doesn’t enter a recession, which seems probable for at least the next year, the company’s two-year goals look achievable. The company is aiming for a return on tangible common equity of 13%-15%. Morgan Stanley already achieved an adjusted ROTCE of 12.9% in 2019 and 13.2% in 2018. The wealth management segment operating margin goal is 28%-30%. Over the previous eight quarters, the wealth management segment had an operating margin above 28% in two quarters.
|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.