Morgan Stanley Jumps 11.2% in 3 Months: How to Play the Stock?
Morgan Stanley MS shares have gained 11.2% in the past 3 months, outperforming the S&P 500 Index's 5.2% rise and its industry 's 10% growth. Moreover, the stock has performed better than its peers, Bank of America BAC and Citigroup C. The BAC stock has moved up 9%, whereas shares of Citigroup have rallied 10.8% in the same time frame.
Price Performance
Does the MS stock have more upside left despite showing recent strength in share price? Let us find out.
What's Aiding Morgan Stanley's Performance?
Increased Focus on Wealth & Asset Management Operations: Morgan Stanley has lowered its reliance on the capital markets for income generation. It has now been focusing on expanding its wealth and asset management operations. The acquisitions of Eaton Vance, E*Trade Financial and Shareworks are also steps in this direction. These moves have bolstered the company's diversification efforts, enhanced stability and created a more balanced revenue stream across market cycles.
The wealth and asset management businesses' aggregate contribution to total net revenues jumped to more than 55% in 2024 from 26% in 2010. We project both segments' total contribution (in aggregate) to the top line to be 52.7% in 2025.
The wealth management segment's total client assets witnessed a five-year (2019-2024) compound annual growth rate (CAGR) of 18.1%, while the investment management segment's total assets under management saw a CAGR of 24.7% over the same period. The upward momentum is expected to continue as the operating environment becomes more favorable.
Strategic Alliances: Morgan Stanley's partnership with Mitsubishi UFJ Financial Group, Inc. will likely keep supporting its profitability. In 2023, the companies announced plans to deepen their 15-year alliance by merging certain operations within their Japanese brokerage joint ventures. The new alliance saw combined Japanese equity research, sales and execution services for institutional clients at Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. Also, their equity underwriting business has been rearranged between the two brokerage units. These efforts will solidify the company's position in Japan's market.
Also, this has helped the company achieve record equity net revenues in the first quarter of 2025, particularly in Asia, through outperformance in prime brokerage and derivatives, led by solid client activity amid heightened volatility. Further, the company's Asia region revenues jumped 34.5% year over year to $2.35 billion in the quarter.
Solid Balance Sheet & Capital Position: Morgan Stanley has a solid balance sheet. As of March 31, 2025, the company had long-term debt of $297 billion, with only approximately $23 billion expected to mature over the next 12 months. The company's average liquidity resources were $351.7 billion as of the same date.
MS's capital distribution plans have been impressive. Following the 2024 stress test results, it announced an increase in its quarterly dividend by 8.8% to 92.5 cents per share. It also reauthorized a multi-year share repurchase program of up to $20 billion, effective the third quarter of 2024 and with no expiration date. Given its solid liquidity position and earnings strength, the company is expected to be able to continue with efficient capital distribution activities, thus enhancing shareholder value.
What's Hurting MS's Growth
Rising Expense Base: Despite Morgan Stanley's restructuring and streamlining efforts that resulted in achieving its cost savings target of $1 billion in 2017, overall expenses have been increasing. Though expenses declined in 2022, the metric witnessed a five-year (ended 2024) CAGR of 7.8%. The rising trend continued in the first quarter of 2025.
Expenses are expected to remain elevated on the steady increase in revenues (leading to higher compensation costs) and inflation, as well as the company's investments in franchise and inorganic growth efforts.
Expense Trend
Reliance on Trading Revenues: Morgan Stanley's over-dependence on trading revenues is worrisome. While sales and trading revenues improved in 2021, 2022 and 2024, they declined in 2023. Because of the uncertainty surrounding the tariff plans, trading revenues increased again in the first quarter of 2025. However, the volatile nature of the business and the expectation that it will gradually normalize toward the pre-pandemic level are likely to make growth challenging in the upcoming quarters.
How to Approach Morgan Stanley Stock Now
MS's efforts to become less dependent on capital markets-driven revenues, its inorganic expansion efforts/strategic alliances, along with relatively high rates, are expected to support financials. Moreover, supported by a solid balance sheet position, the company is expected to be able to meet near-term debt obligations, even if the economic situation worsens.
Earnings Estimates
Rising expenses, given higher compensation costs and inorganic growth efforts, will likely hurt the company's profitability in the near term. High reliance on trading revenues is another headwind.
Hence, investors should not rush to buy the MS stock now; instead, they should keep this Zacks Rank #3 (Hold) stock on their radars and wait for an attractive entry point. Those who already own the MS stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Bank of America Corporation (BAC): Free Stock Analysis Report
Morgan Stanley (MS): Free Stock Analysis Report
Citigroup Inc. (C): Free Stock Analysis Report
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