Everyone, including Barron’s, loves Morgan Stanley (MS). Make that almost everyone, as JPMorgan cut its rating on the investment bank today.
Spencer Platt/Getty Images JPMorgan Cazenove’s Kian Abouhossein and team explain why they downgraded Morgan Stanley to Neutral from Overweight:
We applauded Morgan Stanley for its [fixed income, currencies and commodities, or] FICC restructuring announcement in 2012 as the right step towards improving ROE. However, with [wealth management] earnings growing, we believe the pressure has lessened for management to shrink FICC further, with the business in our estimates consuming c.45% of group RWAs and not generating CoE returns in 2016E. In addition, Morgan Stanley now appears expensive, trading at 11.3x P/E, 1.1x P/NAV for RONAV 9.9% in 2016E which is a material premium to European IBs on average 7.9x 2016E P/E. We do not see Morgan Stanley reaching its 10%+ ROE target (on average common equity) in our current estimates and is offering no upside to our $34 Dec-15 SOP based PT. Hence we downgrade Morgan Stanley to Neutral from OW and see better value in European IBs, in particular UBS (UBS) trading at 9.0x P/E and 1.5x P/NAV for RONAV 16.4% in 2016E.
Shares of Morgan Stanley have fallen 0.6% to $34.81 at 12:11 p.m. today, while UBS has gained 1.6% to $17.58.
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