Oppenheimer analysts downgraded Morgan Stanley’s (NYSE: MS), following yesterday’s Q2 earnings announcement, to “Market Perform”, from “Outperform”.
The stock is downgraded despite trading at a price above Oppenheimer’s $102 target, a result of booming Q2 results that exceeded Wall Street’s expectations.
Earnings for Q2
Morgan Stanley’s Q2 financials for 2024 were robust. The GAAP earnings per share of $1.82 was higher than the consensus of $1.65 and marked an improvement from Q2 2023 when it had been $1.24.
The earnings surprise was driven by the notable recovery of trading revenues and solid performances in investment banking. This reflects a wider recovery in capital market.
The provision for losses on credit rose from $64 million to $76 millions, surpassing forecasts. This highlights potential risks in the midst of financial success.
Morgan Stanley’s Q2 revenues were equally impressive. Net revenue reached $15.0 billion – an increase of 11.1% from the previous year.
The growth of Institutional Securities was evenly distributed across the three main segments, Wealth Management and Investment Management.
Institutional Securities remained unchanged quarter-overquarter, but experienced a 23% year-overyear increase. Investment banking revenues grew by 51% in comparison to last year. This was mainly due to increased activity on equity underwriting, and on fixed income.
Wealth Management revenues, which account for a significant portion of overall revenue, decreased by just 1% compared to the prior quarter, but increased by 2% versus the same period last year.
Morgan Stanley’s massive client assets have grown from $5.69 trillion to $5.69 trillion, showing robust inflows of funds despite the volatile markets.
Investment Management also reported strong growth, as revenues increased by 8% on an annual basis, driven mainly by asset management revenue increases, due to the increase in long-term assets managed.
Return on Shareholders and Valuation
Morgan Stanley announced strategic capital moves alongside these updates. These included an 8.8% rise in the quarterly dividend, which now stands at $0.925, and a reauthorization for a $20 Billion stock repurchase plan.
The actions taken by the company to be more shareholder friendly reflect not only its strong financial position but also their confidence that they can maintain capital adequacy.
Oppenheimer analysts are cautious despite the strong fundamentals.
The report highlights that although Morgan Stanley has a strong position in many areas, Goldman Sachs or Jefferies may be better positioned to take advantage of the current market recovery.
Morgan Stanley’s current trading level suggests that it is hovering around its fair value. The stock may not have much upside in the short term. This is consistent with Oppenheimer’s rationale for downgrading the stock.
The stock may also be nearing its highest price, which could limit the potential for significant appreciation unless there is exceptional growth and/or efficiency improvements that exceed market expectations.
Morgan Stanley has a more stable and less volatile revenue stream as a result of its strategic initiatives.
Its strategic goal of long-term growth and sustainability is reflected in the firm’s efforts to increase client assets.
Let’s now see what charts can tell us about Morgan Stanley’s stock price. We’ll then move on to a more technical analysis, which will help to better understand the company’s strengths and challenges.
Bullish Above $100
Morgan Stanley stock, which had reached an all-time record of $109.73 in February 2022 retraced its steps and traded in the $70-$100 area for over two years. This stock made a significant break above the range in early February.
MS Chart by TradingView
Investors bullish about the stock should only initiate new long positions if the daily close is above the all-time record high of $109.73. This will indicate the beginning of a renewed bull run.
To initiate a short position, traders who are bearish must wait until the price of the stock closes below $100.
In that case, the shorts can sell with a $111 stop-loss. The stock could fall to the recent swing low of $85.6, where profit can be booked.
The post Oppenheimer Downgrades Morgan Stanley Post Q2: Buy or Hold may be modified as updates unfold. This post may change as new information unfolds.
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