Morgan Stanley has delivered powerful long term share gains, which puts a spotlight on whether the current price is fully backed by the returns it earns on its capital. With fresh investments from Dallas real estate to digital assets and private markets, the question now is how far those projects can support the valuation you see on screen.
-
Over the past 3 years, Morgan Stanley has returned about 170.8%, which raises the stakes on whether the underlying returns on capital are strong enough to support that kind of share price performance.
-
The decision to commit US$684m to a new Dallas hub and push further into areas like a Digital Asset Lab and growth equity funds may support future fee income and capital deployment, but it also ties up meaningful capital that needs to earn attractive returns.
-
If you’d rather focus on earnings, this one’s for you. See why Morgan Stanley’s 15.5x P/E tells a different valuation story.
The stock’s next move may depend on whether the returns Morgan Stanley earns on its capital are robust enough to justify where the shares trade today.
If you are weighing Morgan Stanley’s capital projects against its 170.8% three year return, it can help to compare that pattern with 32 high quality undervalued stocks.
Is Morgan Stanley Fairly Priced on Excess Returns?
The Excess Returns approach looks at how much value Morgan Stanley can add above the return investors require on its equity base. In this model, the firm is assumed to have a book value of $67.80 per share and a stable book value estimate of $75.11 per share, supported by analyst expectations for future balance sheet growth. Stable EPS of $14.29 per share and an average return on equity of 19.03% translate into an excess return of $7.28 per share over a cost of equity of $7.01 per share, which implies the business is expected to earn more on its capital than investors are assumed to demand.
The Excess Returns projections put Morgan Stanley’s estimated intrinsic value broadly in line with the current share price of $192.76. The recent decision to commit $684m to a new Dallas regional hub highlights how much capital is being put to work, which helps explain why the market is comfortable paying a price that already reflects meaningful future returns on equity. The model output suggests the share price is roughly tracking the value implied by those projected excess returns. Find out what Morgan Stanley could be worth using our Excess Returns estimate.
