Investors and traders in the financial markets are keeping a close eye on Morgan Stanley (NYSE:MS) after the recent stock upgrade by Wolfe Research analyst Steven Chubak. The upgrade from Underperform to Peer Perform comes in the wake of a significant selloff, which has made the risk-reward profile of the investment bank “much more balanced.”
The pullback in Morgan Stanley’s stock occurred following the release of its Q3 earnings, which revealed softer-than-expected net interest income and higher-than-expected provision for credit losses. These results were against the backdrop of muted mergers-and-acquisitions activity and the challenging high interest-rate environment. However, during the company’s earnings call conference, Morgan Stanley Chairman and CEO James Gorman expressed optimism, highlighting the increasing evidence of a recovery in M&A and underwriting calendars and the expectation of continued momentum.
Despite the recent underperformance of Morgan Stanley’s stock, Chubak argues that it is now “fairly valued, with earnings risk better reflected in consensus.” According to him, the current valuation of the stock, at around 10.6 times his blended 2024/2025 EPS estimates, suggests that the market has already priced in the potential risks.
It’s worth noting that Morgan Stanley’s stock has retreated 14.9% year-to-date, while the broader market, represented by the S&P 500, has climbed 11.9%. However, the recent upgrade by Wolfe Research aligns with the SA Quant system rating of Hold, highlighting the need for cautious optimism and a balanced perspective.
In Friday morning trading, Morgan Stanley’s stock inched up 0.6%, indicating a positive response from investors to the upgraded rating.