Wolfe Research upgraded Morgan Stanley (MS) to Outperform from Peer Perform as analyst Steven Chubak believes Wall Street isn’t fully appreciating the bank’s Institutional Securities market share gains and the stock has been underperforming its peers.
Morgan Stanley (MS) stock rose 2.0% in Monday morning trading.
In addition, the bank is benefiting from strong incremental margins/operating leverage, he added.
Morgan Stanley (MS) has underperformed most universal bank peers during the past two years despite comparable EPS revisions, the analyst noted.
Now the stock is attractively valued at ~12x Wolfe’s 2027 EPS estimate, compared with ~11x average for universal peers, Chubak said. “We would argue for a wider multiple gap given MS’s best-in-class EPS growth and more durable earnings mix,” he added in the note to clients.
Wolfe also said it’s comfortable “leaning into” a pair trade of Morgan Stanley (MS) vs. Goldman Sachs (GS), given the narrowing valuation gap between the two stocks and stronger EPS growth at MS. “We believe MS is now better positioned to recoup the bulk of its stock underperformance vs. GS over the last three years, with our updated valuation framework implying as much as ~2500bps alpha potential in the pair,” Chubak said.
Goldman Sachs (GS) stock, though, also rose, up 1.6% in morning trading.