Morgan Stanley praised for 'solid' quarter but its valuation draws downgrade
By Steve Gelsi
Oppenheimer's Chris Kotowski cuts rating on investment bank to neutral from buy
While Morgan Stanley delivered stronger-than-expected second-quarter results, the bank's stock price is currently trading at fair value, Oppenheimer analyst Chris Kotowski said Wednesday.
Oppenheimer on Wednesday downgraded Morgan Stanley (MS) to neutral form buy after a stock price gain of about 9.5% to $106.22 a share in the past month.
"The stock has traded through our $102 target price, and our valuation model on our new estimates indicates the stock is roughly fairly valued at current levels," Kotowski said.
While Morgan Stanley's big investment banking franchise is poised for more growth as deal-making returns to long-term trend levels, Oppenheimer sees more relative value in Goldman Sachs Group Inc. (GS) and Jefferies Financial Group Inc. (JEF).
"We are still believers that the investment banking recovery has room to run, but see GS and JEF as much better positioned to benefit relative to MS," Kotowski said.
Morgan Stanley's second-quarter earnings of $1.82 a share beat Oppenheimer's estimate of $1.58 a share and the analyst consensus view of $1.65 a share, as the investment bank's revenue surged past forecasts.
"The beat was in particular driven by the institutional group, whose trading revenues of $5 billion handily beat our $4.5 billion estimateand were up 17.7% year over year," Kotowski said.
Morgan Stanley's investment-banking revenues jumped 51% to $1.6 billion, well ahead of Oppenheimer's $1.4 billion estimate.
"The capital markets rebound that we have been looking for seems to be materializing, and we still think we have a long way to go to full normalization," Kotowski said. "However, we have normalization by 4Q25 built into our models and thus only made relatively minor increases in our 2025 estimate."
Given the bank's positive second-quarter results, the stock does not seem to be over value, but it's "merely fairly valued," he said.
Also read: JPMorgan downgraded on valuation, while Bank of America shines as top pick: analyst
-Steve Gelsi
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07-17-24 0701ET
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