Morgan Stanley earnings: record profits warrants buying at current levels

Morgan Stanley MS shares are inching higher on Wednesday morning after the bank posted Q2 earnings that came in miles above Street estimates.

The multinational reported a 27% year-on-year increase in its net revenue to a record $21.4 billion (approx. €18.6 billion) on 58% growth in earnings per share (EPS) to $3.46 – also an all-time high.

“Active markets and consistent execution across all three regions drove exceptional results for our Integrated Firm,” said Ted Pick, Chairman and CEO of Morgan Stanley.

Including today’s gains, Morgan Stanley stock is up nearly 50% versus its year-to-date high.

What drove record profits in Morgan Stanley’s Q2

Underpinning the Q2 stellar results was a staggering resurgence in investment banking and capital markets activity.

The bank's Institutional Securities segment brought in an exciting $11 billion (approx. €9.6 billion) in revenue, fueled primarily by its record-setting equity trading division, which skyrocketed to $6.3 billion (approx. €5.5 billion) – up 69% year-on-year.

Equity underwriting surged to $851 million (approx. €742.3 million) on the back of a booming IPO pipeline, while advisory fees reached $798 million (approx. €696.1 million) due to robust cross-border mergers and acquisitions activity.

In its earnings release, Morgan Stanley also revealed $788 million (approx. €687.4 million) in fixed-income underwriting.

This alignment of trading prowess and advisory strength reinforced that Wall Street’s dealmaking drought is likely over, and MS stock is capturing the lion’s share of the rebound.

Is it worth investing in MS shares today?

Morgan Stanley’s strong wealth management engine and outstanding capital efficiency make up for another great reason to load up on its stock today.

The Wealth Management division pulled in $148.1 billion (approx. €129.2 billion) in net new assets for the quarter, pushing its total asset footprint closer to long-term goals while driving a 14% increase to $8.9 billion (approx. €7.7 billion).

Importantly, MS delivered an 26.6% Return on Tangible Common Equity (ROTCE) – showcasing immense operational leverage as its expense efficiency ratio optimized to 65%.

Management capitalized on this strength by sweetening shareholder returns, raising the quarterly dividend by 15% to $1.15 per share and reauthorizing a multi-year $20 billion (approx. €17.4 billion) share buyback plan.

This combination of a high-yield dividend, defensive wealth management cash flows, and massive buybacks makes Morgan Stanley shares a compelling buy.

Morgan Stanley stock isn’t inexpensive to own

Looking ahead, Morgan Stanley’s strategic transformation under CEO Ted Pick is paying off rather well.

It’s no longer just a volatile, deal-dependent investment bank – it has successfully constructed an impressive moat where recurring, fee-based asset management revenues balance out and fund its aggressive trading desk.

As corporate boardrooms reactivate global capital deployment and public market transitions gain pace, MS shares stand uniquely poised to extract compounding returns.

That said, Morgan Stanley is currently trading at more than 18x forward earnings, which makes it more expensive to own than several of its Wall Street peers.

The consensus rating on it, however, remains at Moderate Buy.