financial analysis
Morgan Stanley FAR
1) Morgan Stanley was founded in 1935 as a financial service and investment corporation. They advise their clients to ensure they make the best possible decision for their capital. Their clients consist of other corporations, governments, institutions, and individuals. Morgan Stanley corporation prides themselves in giving back to the community and growing together.
a) The services Morgan Stanly offers include wealth management, investment management, sustainable investment, investment banking and capital markets, sales and trading, research, and inclusive innovation. Their ability to focus in multiple areas and provide various solutions to their clients makes them a leading competitor. Its top competitors include JP Morgan Chase, Citi bank, Wells Fargo, Bank of America, Goldman Sachs, Deutsche Bank, Barclays, etc.…. The business has three segments to it, Institutional Securities Group, Wealth Management, and Investment Management. Institutional Securities Group advises institutions on real estate, project finances, and corporate lending. This segment brings in the most profit for Morgan Stanley. Wealth Management is stock brokerage oriented; they offer wealth planning services to high net-worth individuals. Investment Management helps their clients with many types of investment opportunities such as, real estate, private equity, and fixed income.
b) A major impact Morgan Stanley has faced, along with many other corporations, is the CoronaVirus Pandemic. Covid-19 has shocked our economy and set out major setbacks for all the goals that were set to achieve in the year of 2020. Although it is said that Morgan Stanley is more resilient this time around from the last recession they still must be cautious with how much liquidity they provide institutions and clients. The table below was created by Morgan Stanley and Oliver Wyman, it outlines outcomes of the limited paths they can take to help minimize the losses and help with recovery time. Although they all end up with a recession this decision should not be taken lightly, for each outcome may affect many other variables the pandemic has undone.
2) James P. Gorman is currently chairman and CEO of Morgan Stanley, he joined February 2006, before he held many executive positions in Merrill Lynch. He was also a director at the Federal Reserve Bank in New York.
Elizabeth Corey has been with the corporation since 2015 and is one of the directors since 2018. She also worked at Merrill Lynch for 11 years and served at the Forum of European Asset Managers for 2 terms.
Alistair Darling has been a director since 2016, he held many leadership positions throughout the years, for example, the chancellor of Exchequer for 3 years.
Thomas H. Glocer has been a director since 2013 and before that he was a mergers and acquisitions lawyer at Davis and Polk.
3) Like other major companies Morgan Stanley is not immune to reducing their investing securities, in 2015 Morgan Stanley had cut around 25% fixed income jobs. Morgan Stanley was also a part of creating mortgage-backed securities from the 2008-2009 recession and they paid around $3.2 billion to settle it in 2016. Billing errors in 2017 were said to charge around 149,000 clients in excess fees leading to civil charges against Morgan Stanley, which they responded to settling it with $13 million. Morgan Stanley was accused in 2018 of not abiding by the anti-money laundering program. FINRA found that Morgan Stanley’s failure to monitor their alert system a substantial amount of money was laundered in and out of the U.S… In 2019 Morgan Stanley had predicted that GDP would rise a little bit from 2018 because emerging markets were starting to get back on track. As we all know 2020 has left us in a bad situation with the majority of people losing their jobs and the pandemic going around and taking lives as it passes by. Morgan Stanley along with other companies are looking for ways to help people such as fighting hunger and doing what is best for people’s investments. Covid-19 directly affected investment sustainability goals as well as affecting our global economy. Morgan Stanley is fighting to find solutions on how to recover from this pandemic.
4.A.
In the past 5 years there has been a growth in dividend of Morgan Stanley, in July 15, 2015, it started off with a dividend of $.15, later increasing to $.20 in January 26, 2017 and then increasing to what it is now at $.35. It has been reported that investors had seen a 18.65% increase in their investments. As for their profit growth, Morgan stanly has been shown to have an increase in their profit, as shown in the table below, Morgan Stanley’s Profit margin has increased from 13.58 to 16.95.
4.B.
|
|
2015 |
2016 |
2017 |
2018 |
2019 |
|
Current ratio |
.75 |
.78 |
.77 |
.81 |
.75 |
|
Total asset turnover |
4.22 |
4.01 |
4.20 |
4.42 |
4.34 |
|
Debt ratio |
.93 |
.90 |
.91 |
.90 |
.91 |
|
Debt-to- equity ratio |
2.24 |
2.38 |
2.75 |
2.60 |
2.60 |
|
Profit margin |
13.58 |
13.25 |
12.08 |
16.80 |
16.95 |
|
Return on assets |
.69 |
.67 |
.66 |
.95 |
.95 |
|
Return on equity |
7.46 |
7.08 |
7.04 |
10.23 |
10.29 |
|
Payout ratio |
24.7 |
30.08 |
33.54 |
26.74 |
28.44 |
|
P/E ratio |
10.20 |
13.79 |
16.50 |
8.34 |
9.85 |
|
Dividend yield |
1.64 |
2.05 |
1.77 |
2.45 |
2.81 |
|
Market-to- book ratio |
.75 |
.97 |
1.16 |
.82 |
.99 |
4.C.
As shown in the line chart, there is a noticeable increase in the ROE ratio, however, there isn't any difference with the ROA and Current ratio. Although, the ROA ratio is slightly higher in 2019 then when it was in 2015. According to Fortune.com, Morgan Stanley has started focusing on younger and “tech-savvy” clients, they even purchased the Solium Capital in February 2019, increasing the opportunities for Morgan Stanley to be able to capitalize the usage of Instacart and Shopify. In the early 2020, Morgan Stanley also purchased the bankrupt Etrade for$13 billion, allowing Morgan Stanley to be able rival Robinhood. With these changes Morgan Stanley is able to raise its profits, making it possible for investors to notice an increase in their investment.
5A. Morgan Stanley finished the last quarter of 2019 pretty strong with some growth in stock prices starting at $40.45 per share and ending the quarter at $50.19 per share.
5B. Over the past 12 months, the stock had steady growth from the second half of 2019 to the first quarter of 2020. That is until COVID-19 started a recession. The growth was from $40.73 per share on June 3, 2019, to $56.31 on February 19, 2020 which is a week or so before the recession. As of June 1st, 2020 the price looks to be back on a slow growth at $44.70 per share. Over the past 5 years, the price has seen some big changes in response to certain events, but still has an upward curve meaning it's still growing. Back in February 12, 2015 the price dropped to an all-time low of $21.69. Morgan Stanley had to pay out $3.2 billion dollars to the government for its role in the 2008 financial crisis. After that incident the price was low enough to attract new investors and the price has since been growing slowly.
5C. Compared to the S&P 500 index, Morgan Stanley has shown to have higher holding period returns. Quarterly HP 2019: Morgan Stanley - 24.94%. The S&P 500 - only a 9.55%. Annual HP 2019: Morgan Stanley - 33.17%. The S&P 500 - 28.34%. In a shorter term, MS stock price is more sensitive than the market. Longer term MS has a more even ratio to the market. Historical monthly returns have also shown on average Morgan Stanley outperforming the market. MS 2019 Average Return is 1.1413%, Standard Deviation is 7.1518% Average Annual Return is 14.5890%, Average Annual STDEV 24.7990%. S&P 500 2019 Average Return is .8794%, Standard Deviation is 3.4537%, Average Annual Return is 11.0781%, Average Annual STDEV is 11.9640%. Their correlation is a positive 0.65 and the numbers do show this to be true.
5D I. The Intrinsic Stock Price was calculated to be $5.7741 using the dividend growth model.
II. Compared to a current price of $49.96 per share, it looks overvalued because this is only using a dividend growth model and not taking into account future cash flows or any excess return per share.
References
“Morgan Stanley - 27 Year Stock Price History: MS.” Macrotrends, https://www.macrotrends.net/stocks/charts/MS/morgan-stanley/stock-price-history
https://www.macrotrends.net/stocks/charts/MS/morgan-stanley/current-ratio
https://fortune.com/company/morgan-stanley/
“Morgan Stanley Strategy Challenge.” Morgan Stanley, www.morganstanley.com/about-us/giving-back/strategychallenge .
Lynch, Sarah N. “Morgan Stanley to Pay $13 Million for Overbilling Clients: SEC.” Reuters, Thomson Reuters, 13 Jan. 2017, www.reuters.com/article/us-sec-morgan-stanley-idUSKBN14X27X.
Buckman, Caitlyn. “FINRA Fines Morgan Stanley For Five Years Of Ineffective Anti-Money Laundering Monitoring.” Syracuse Law Review, 8 Feb. 2018, lawreview.syr.edu/finra-fines-morgan-stanley-for-five-years-of-ineffective-anti-money-laundering-monitoring/.
https://www.discoverci.com/companies/MS/dividend-payout-ratio
“Banking on the Next Cycle.” Morgan Stanley, www.morganstanley.com/ideas/coronavirus-recession-recovery-banking-industry.