- If you are wondering whether Morgan Stanley at around US$158 per share still offers value after a strong multi year run, this article breaks down what the market might be pricing in today.
- The stock has pulled back over the short term, with a 7 day return of a 3.6% decline and a 30 day return of a 4.9% decline, while still sitting on returns of 39.4% over 1 year, 100.6% over 3 years and 138.3% over 5 years.
- Recent coverage has focused on Morgan Stanley's role as a major US diversified financials group, and on how investor sentiment around large capital markets firms has shifted over time. This context helps explain why the share price can move sharply even when there is no single, company specific headline driving the action.
- Morgan Stanley currently scores 5 out of 6 on our valuation checks. The next sections will break down what different valuation approaches are signaling and will introduce an even deeper way of thinking about value at the end of the article.
Approach 1: Morgan Stanley Excess Returns Analysis
The Excess Returns model looks at how efficiently Morgan Stanley uses shareholder capital. It compares the return generated on equity to the cost of that equity, and then capitalizes the difference into an intrinsic value per share.
For Morgan Stanley, book value is $64.37 per share and the stable earnings per share used in the model are $12.65, based on weighted future Return on Equity estimates from 14 analysts. The average Return on Equity used is 17.28%, while the cost of equity is $6.80 per share. That gap produces an excess return of $5.85 per share, which is what this model treats as value created above the required return.
The model also uses a stable book value of $73.22 per share, again sourced from weighted future Book Value estimates from 14 analysts. Putting these inputs together, the Excess Returns framework produces an estimated intrinsic value of about $172.69 per share, which is roughly an 8.3% premium to the current price around $158. This indicates the stock is approximately fairly valued with a mild lean to the cheap side.
Result: ABOUT RIGHT
Morgan Stanley is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Approach 2: Morgan Stanley Price vs Earnings
For a profitable company like Morgan Stanley, the P/E ratio is a straightforward way to think about value, because it links the price you pay directly to the earnings generated per share. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk, and a lower P/E when growth expectations are more modest or risks are higher.
Right now, Morgan Stanley trades on a P/E of 15.48x. That sits below the Capital Markets industry average P/E of 33.02x and also below a peer group average of 23.65x. Simply Wall St’s Fair Ratio for Morgan Stanley is 18.58x, which is the P/E level that would typically line up with its earnings growth profile, profitability, industry, market cap and risk characteristics.
The Fair Ratio is more tailored than a simple comparison with peers or the wider industry, because it adjusts for company specific factors like growth, risks and profit margins, rather than assuming that all Capital Markets stocks deserve the same multiple. Comparing Morgan Stanley’s actual P/E of 15.48x with the Fair Ratio of 18.58x indicates that the shares are trading below what this framework would treat as a normal level.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Morgan Stanley Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach a clear story about Morgan Stanley to the numbers by linking your view of its future revenue, earnings and margins to a financial forecast, turning that into a Fair Value you can compare with the current price. This Fair Value updates automatically as new news or earnings arrive, and allows you to see, for example, how one Narrative built around a Fair Value of US$221.00 with assumptions like 8.1% annual revenue growth, a 24.70% profit margin, a 20.26x future P/E and ongoing buybacks differs from another that anchors on a Fair Value of US$150.65 with 3.68% revenue growth, a 22.63% margin and a 16.75x future P/E. This helps you decide which story best fits your own expectations.
For Morgan Stanley, however, we will make it really easy for you with previews of two leading Morgan Stanley Narratives:
Fair value in this Narrative: US$195.81 per share
Implied pricing gap vs last close: about 19.2% below this Narrative fair value
Revenue growth assumption: 5.72% per year
- Assumes steady revenue growth helped by rising global wealth, strong demand for advisory services and new products such as ESG and alternative strategies.
- Sees technology investment, digital platforms and international build out supporting margin resilience and earnings stability over time.
- Builds in ongoing buybacks and a solid capital position as tools to support returns, while acknowledging competitive, regulatory and integration risks.
Fair value in this Narrative: US$150.65 per share
Implied pricing gap vs last close: about 4.9% above this Narrative fair value
Revenue growth assumption: 3.68% per year
- Focuses on pressure from the shift to passive products, higher compliance costs and integration challenges that could weigh on fee growth and margins.
- Builds a slower top line path with only modest margin improvement and a lower future P/E multiple compared with more optimistic views.
- Recognises that good client activity, wealth inflows and technology investment are supports, but treats current market expectations as relatively full.
Both Narratives use the same core business but tell very different stories about how growth, margins and the valuation multiple might play out, so the key step is deciding which set of assumptions is closer to how you see Morgan Stanley over the next few years.
Do you think there's more to the story for Morgan Stanley? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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