Morgan Stanley Earnings: We’re Cautiously Optimistic on the Company’s Earnings Trajectory

Morgan Stanley’s MS net revenue has been range-bound over the previous year, but the increasing probability of a soft landing and recent capital markets activity give us cautious optimism on earnings bottoming. Morgan Stanley reported net income to common shareholders of $2.05 billion, or $1.24 per diluted share, on $13.46 billion of net revenue. Net revenue decreased 7% from the previous quarter, which had benefited from strong trading results, and increased 2% from the previous year. We don’t anticipate making a material change to our $91 fair value estimate for narrow moat-rated Morgan Stanley and assess that shares are fairly valued.

There were two revenue lines that we found interesting: underwriting and net interest income. Underwriting revenue in the institutional segment came in at $620 million compared with $474 million a year ago and $609 million the previous quarter. The recovery in equity markets seems to have thawed some of the underwriting pipeline. Merger advisory revenue was at its lowest level since 2020, though, as it takes longer to finish a merger deal even when the economic outlook and corporate confidence is trending up.

Morgan Stanley’s management said that it expects net interest income to not grow for the remainder of the year. Net interest income in the wealth management business, where most net interest income is booked, has been flat for the previous two quarters at about $2.2 billion. Similar to other investment service firms, low-cost sweep deposits have decreased, while high-cost savings and other deposits have increased, which has kept net interest income from growing despite the higher interest-rate environment.

After the annual Federal Reserve stress test results for banks were released, Morgan Stanley increased its quarterly dividend by $0.075 to $0.85 per share.