On July 18, 2023, Morgan Stanley (MS, Financial) witnessed a significant price change of 6.45%, taking the stock price to $91.94. With a market capitalization of $153.6 billion, the company's earnings per share (EPS) stands at $5.82. According to the GuruFocus Value, the fair value of the stock is estimated to be around $88.2, making Morgan Stanley fairly valued.
Morgan Stanley is a globally recognized investment bank with a rich history dating back to 1924. The firm operates through institutional securities, wealth management, and investment management segments. By the end of 2022, it managed over $4 trillion in client assets with a workforce exceeding 80,000. The institutional securities business contributes approximately 50% of the company's net revenue, with the remainder sourced from wealth and investment management. Around 30% of its total revenue is generated outside the Americas.
Understanding the GF Value
The GF Value is a unique metric that estimates a stock's intrinsic worth based on historical trading multiples, an adjustment factor from GuruFocus, and future business performance predictions. If a stock's price significantly exceeds the GF Value Line, it is considered overvalued and likely to deliver poor future returns. Conversely, if the price falls significantly below the GF Value Line, higher future returns are expected. Given its current price, Morgan Stanley is deemed fairly valued, implying that the long-term return of its stock is likely to align with its business growth rate.
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Assessing Financial Strength
Companies with weak financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company’s financial strength before purchasing shares. The cash-to-debt ratio and interest coverage are reliable indicators of financial strength. Morgan Stanley's cash-to-debt ratio of 0.3 ranks lower than 81.43% of companies in the Capital Markets industry, indicating poor financial strength.
Profitability Analysis
Consistent profitability over the long term reduces investment risk. Higher profit margins usually suggest a better investment compared to a company with lower profit margins. Morgan Stanley has been profitable for the past 10 years, with a revenue of $49.9 billion and an EPS of $5.82 in the past twelve months. However, its operating margin is 0%, ranking lower than most companies in the Capital Markets industry.
Growth Evaluation
Growth is a crucial factor in a company's valuation. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Morgan Stanley’s 3-year average revenue growth rate is better than 50.15% of companies in the Capital Markets industry. However, its 3-year average EBITDA growth rate is 0%, which ranks lower than most companies in the industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Morgan Stanley’s ROIC is 0, and its WACC is 6.56.
Conclusion
In summary, Morgan Stanley (MS, Financial) stock is estimated to be fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks lower than most companies in the Capital Markets industry. To learn more about Morgan Stanley stock, you can check out its 30-Year Financials here.
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