Ever wondered if Morgan Stanley’s stock is the opportunity you’ve been waiting for? Let’s dig in to see what’s really driving its perceived value right now.
The stock recently closed at $162.29, showing a year-to-date surge of 30.1% and a gain of 26.7% over the past year, though it dipped 4.5% in the last week alone.
Market chatter has picked up amid sector rotation into financials, driven by renewed optimism around interest rate cuts. Recent headlines about Morgan Stanley expanding its wealth management footprint and making strategic leadership changes have also caught investors’ attention.
Our initial valuation score for Morgan Stanley comes in at 3 out of 6 on key metrics, meaning it appears undervalued in half of our checks. Next, we will break down how this score was calculated using different approaches, so keep reading for a smarter way to think about valuation later in the article.
Morgan Stanley delivered 26.7% returns over the last year. See how this stacks up to the rest of the Capital Markets industry.
The Excess Returns model evaluates a company’s value by measuring how much return it generates above its cost of equity on invested capital. This method focuses on long-term profitability instead of relying solely on cash flow projections. For Morgan Stanley, key metrics highlight its ability to create shareholder value above the basic cost of capital.
Morgan Stanley’s Book Value per share is $62.98, and its Stable Earnings Per Share are estimated at $11.10, based on weighted future Return on Equity estimates from 13 analysts. The Cost of Equity is calculated at $6.64 per share, resulting in an Excess Return of $4.46 per share. This indicates an Average Return on Equity of 16.30%, reflecting strong capital efficiency. In addition, the Stable Book Value is projected to reach $68.10 per share, according to future estimates from 14 analysts.
According to this model, the intrinsic value per share is estimated at $136.77. With the recent share price at $162.29, the stock appears to be 18.7% above its intrinsic value, which suggests it is currently overvalued by this approach.
Result: OVERVALUED
Our Excess Returns analysis suggests Morgan Stanley may be overvalued by 18.7%. Discover 897 undervalued stocks or create your own screener to find better value opportunities.
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Morgan Stanley.
The Price-to-Earnings (PE) ratio is widely recognized as a valuable yardstick for profitable companies like Morgan Stanley because it connects the company’s current share price to its annual earnings. This makes it easier to gauge whether investors are paying a fair price for each dollar of net income. For companies with steady profits, the PE ratio helps investors quickly compare relative valuation across peers and industries.
Gold price (XAU/USD) attracts some buyers to around $4,110 during the early Asian session on Thursday. The precious metal gains momentum amid the cautious mood and uncertainty over the US economy. Traders will closely monitor the US September Nonfarm Payrolls (NFP) later on Thursday.
Heightened economic uncertainty, including a delay in key jobs reports due to a recent government shutdown, has complicated the Federal Reserve’s (Fed) assessment of the labor market. This, in turn, boosts the safe-haven asset like Gold. All eyes will be on the delayed September jobs report, which could provide insight into the health of the US labor market and offer more clues about the path of US interest rates.
A weaker-than-expected report might increase the likelihood of a December rate cut and lift the yellow metal. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
On the other hand, waning expectations of a Federal Reserve (Fed) rate cut next month could exert some selling pressure on the non-yielding gold. The minutes from the Federal Open Market Committee’s (FOMC) October 28-29 meeting showed that Fed officials are divided and cautious about the path forward for interest rates.
While the committee decided on a 25 basis point (bps) rate cut, it was a divided decision, with some members leaning against another reduction in the December meeting. Markets are now pricing in nearly a 30% chance of a Fed rate cut next month, down from around 60% odds last week, according to the CME FedWatch tool.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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