Home Banking Morgan Stanley Caps Off One of “Strongest Years” Ever with Q4 Beat

Morgan Stanley Caps Off One of “Strongest Years” Ever with Q4 Beat

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Key Points

  • Morgan Stanley stock rose about 4% on Thursday.
  • The firm reported huge Q4 earnings.
  • Is Morgan Stanley stock a buy?

The firm posted a 145% increase in earnings in Q4.

Morgan Stanley (NYSE:MS) finished off a record year with a strong fourth quarter that saw the firm easily beat estimates.

The financial services behemoth generated $16.2 billion in revenue in the fourth quarter, a 26% year-over-year increase. It crushed estimates of $14.7 billion in revenue.

Net income skyrocketed 145% in Q4 to $3.7 billion, or $2.22 per share. That easily beat consensus estimates of $1.64 per share.

For fiscal 2024, it was a record year. Revenue increased to a record $61.7 billion, which was 14% higher than 2023. Net income jumped to $13.4 billion, or $7.95 per share – a 53% increase over the previous year.

“An excellent fourth quarter with a 20% ROTCE (return on tangible common equity) followed three quarters of consistent execution for Morgan Stanley, capping off one of the strongest years in the firm’s history,” Ted Pick, Morgan Stanley chairman and CEO, said.

The stock was up almost 4% Thursday to around $135 per share.

All three businesses are clicking

Morgan Stanley has three major business lines. One is Institutional Securities, which includes investment banking and institutional trading. The second is Wealth Management, which includes brokerage, advice, financial planning and other services for business, high-net-worth individuals, and institutions. The third is Investment Management, which encompasses its asset management business.

All are among the leaders in their respective fields, and they typically perform differently in different market cycles. It’s a nicely diversified balance of revenue streams that enables Morgan Stanley to outperform in most cycles.

The stock has returned 48% over the past 12 months, but it also stands out over the longer term. In the past five years, Morgan Stanley stock has posted an average annualized return of 20.4%, beating all its major competitors. And over the last 10 years it has reported an average annualized return of 14.5%, which is better than all except JPMorgan Chase at 16.6%.

In the fourth quarter, all three were clicking. Institutional Securities saw a 49% revenue increase to $7.3 billion. Investment banking revenue grew 25% to $1.6 billion, and its institutional trading businesses did even better. Equity trading revenue jumped 51% to $3.3 billion while fixed income trading revenue spiked 35% to $1.9 billion.

On the Wealth Management side, revenue increased 13% to $7.5 billion, while Investment Management revenue jumped 12% to $1.6 billion.

Expense management boosts earnings

While increased revenue certainly played a role, a huge key to Morgan Stanley’s huge earnings increase was its expense management.

The firm managed to keep non-compensation expenses in check, as they rose just 1% year over year to $4.9 billion. Non-compensation expenses in relation to revenue were 30%, down from 38% in the same quarter a year ago.

Further, compensation and benefits expenses rose 6% year over year to $6.3 billion, but they were down 7% compared to Q3 of 2024. Compensation and benefits expenses in relation to revenue were 39%, down from 46%.

Overall, the firm’s expense efficiency ratio was 69%, down from 84% a year ago. This helped Morgan Stanley raise its ROTCE to 20.2%, up from 8.4%, and its pre-tax margin to 30% from 16%. Both of these metrics are signs of improved efficiency.

Is Morgan Stanley stock a buy?

Morgan Stanley declared a 93 cents per share dividend for the first quarter, which is the same as the last quarter. But in the presentation, Pick said that the firm is committed to growing the dividend, building on its 11 straight years of dividend raises. It is currently paying out a robust dividend yield of 2.83%.

On the earnings call, CFO Sharon Yeshaya discussed the robust M&A pipeline for Morgan Stanley, saying it is the strongest it has been in five to 10 years.

Morgan Stanley stock has been on a nice run, and it should continue. Its valuation is still reasonable with a P/E ratio of 19 and it has some tailwinds in investment banking. On the earnings call, officials said the firm had momentum across all of its businesses.

Analysts have a median price target of $131 per share, which is actually 2% lower than its current $135 per share price. I suspect there will be some upgrades after analysts digest this report. Morgan Stanley has a proven track record, a good business model, a reasonable valuation, and strong leadership. It’s pretty much always a stock to put on your radar.

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Dave Kovaleski
Senior News Writer

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