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One of the most well-known global investment banks, Morgan Stanley MS, released its first-quarter 2025 results on April 11, registering robust results across the business segments.
Morgan Stanley’s quarterly top and bottom-line numbers easily outpaced the Zacks Consensus Estimate. This was driven by solid capital markets performance and a strong wealth management business.
Is Morgan Stanley stock worth adding to your portfolio based on a better-than-expected first-quarter performance? Before discussing this, let’s recap its quarterly performance.
Investment Banking (IB) Fees: In the first quarter, industry-wide IB business witnessed better-than-expected activity, and Morgan Stanley performed well. The company’s total IB fees (in the Institutional Securities division) grew 7.7% from the prior-year quarter to $1.56 billion. Specifically, debt underwriting fees rose 21.8% while equity underwriting fees were down 25.8%. Further, advisory fees grew 22.1%.
Likewise, Morgan Stanley’s close peer JPMorgan JPM recorded a similar trend during the quarter, while another peer Goldman Sachs GS witnessed less impressive IB performance during the quarter. JPMorgan’s IB fees rose 12% from the prior-year quarter to $2.25 billion, while Goldman’s IB fees declined 8% to $1.91 billion due to lower advisory fees.
MS remains cautiously optimistic about the performance of the IB business this year, supported by a stable and diversified merger and acquisition (M&A) pipeline. On the first-quarter conference call, chief financial officer Shraon Yeshaya said, “While tariff announcements and subsequent market volatility have disrupted near-term deal activity, our pipelines have not meaningfully changed since the beginning of the year and remain robust.”
Trading Revenues: Trading volume and market volatility rose during the first quarter because of tariff-related concerns, benefiting MS. The company’s equity trading revenues soared 45.2% year over year to $4.13 billion, and fixed-income trading income grew 4.8% to $2.6 billion.
Likewise, Goldman and JPMorgan recorded robust performance in their trading business during the quarter. Goldman’s net revenues in Equities rose 27% year over year to $4.2 billion, and fixed income, currency, and commodities trading revenues rose 2% year over year to $4.4 billion. Similarly, JPMorgan’s markets revenues soared 21% to $9.7 billion. Specifically, fixed-income markets revenues grew 8% to $5.8 billion, while equity trading numbers surged 48% to $3.8 billion.
Though the trading business will likely normalize over time, Morgan Stanley is expected to keep performing well, given its scale and size, increased volatility, and client engagement due to the uncertainties related to recent tariff policy decisions. However, a sharp market sell-off could dampen client activity and weigh on the trading business.
Entering 2025, a major rebound in M&As was expected, with deal-making activities likely to grow in the mid-20s. This optimism stemmed from pent-up demand, stabilizing or declining interest rates, tightening credit spreads, and strong public market valuations. Also, the Trump administration was regarded to be more business-friendly, with an expected rollback of stringent oversight that could mark the end of the prolonged regulatory scrutiny.
None of these has transpired till now. Deal-making activities have been muted as ambiguity over the tariff and ensuing trade war has resulted in extreme market volatility. These developments have led to economic uncertainty, data indicating a slowdown/recession in the U.S. economy, and mounting inflationary pressure. Amid such a backdrop, companies are rethinking their M&A plans despite stabilizing rates and having significant investible capital.
This will delay the expected IB rebound and have some adverse impact on IB firms such as Morgan Stanley, JPMorgan, and Goldman Sachs, which generate billions in revenues from M&A advisory fees.
Revenue Diversification: MS has lowered its reliance on capital markets for income generation. The company’s focus on expanding its wealth and asset management operations and strategic acquisitions, including Eaton Vance, E*Trade Financial, and Shareworks, is a step in that direction. These moves have bolstered its diversification efforts, enhanced stability and created a more balanced revenue stream across market cycles. Both businesses’ aggregate contribution to net revenues jumped to more than 55% in 2024 from 26% in 2010. For the first quarter of 2025, the aggregate contribution to net revenues was 50.3%.
In the first quarter, Morgan Stanley witnessed net outflows of $13.6 billion in the Investment Management division because of volatile markets. On the other hand, assets under management or supervision grew 9.4% year over year to $1.6 trillion as of March 31, 2025. Further, the Wealth Management division’s total client assets rose 9.5% on a year-over-year basis to $6 billion.
Strategic Alliance: Morgan Stanley’s partnership with Mitsubishi UFJ Financial Group, Inc. MUFG is expected to continue supporting its financials. In 2023, the companies announced plans to deepen their 15-year alliance by merging certain operations within their Japanese brokerage joint ventures.
The new strategic alliance will see combined Japanese equity research, sales and execution services for institutional clients at Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. Also, their equity underwriting business has been rearranged between the two brokerage units. These efforts will solidify the company’s position in the lucrative Japanese market.
This helped MS to achieve record equity net revenues in the first quarter of 2025, particularly in Asia, through outperformance in prime brokerage and derivatives driven by solid client activity amid heightened volatility. Further, the company’s Asia region revenues jumped 34.5% year over year to $2.35 billion during the quarter.
Robust Balance Sheet: Morgan Stanley’s solid balance sheet position supports its enhanced capital distributions. Following the 2024 stress test results, the company announced an increase in its quarterly dividend by 8.8% to 92.5 cents per share.
The company also reauthorized a new multi-year share repurchase program of up to $20 billion, effective the third quarter of 2024 and with no expiration date. As of March 31, 2025, approximately $17.5 billion worth of shares remained available under the authorization.
Though solid quarterly results and resilient M&A pipelines remain positive, tariff-related uncertainties keep analysts cautious on Morgan Stanley’s prospects.
Over the past month, the Zacks Consensus Estimate for 2025 earnings has been revised marginally upward to $8.61. However, the consensus estimate for 2026 earnings has been revised 1.1% downward to $9.21.
Estimate Revision Trend
The Zacks Consensus Estimate for Morgan Stanley’s 2025 and 2026 earnings implies year-over-year growth of 8.3% and 7%, respectively. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
The MS stock is currently trading at the forward 12-month price/earnings (P/E) of 12.09X. This is above the industry’s 11.11X, reflecting a slightly stretched valuation.
Price-to-Earnings F12M
Morgan Stanley’s strong global presence and strategic focus on stable revenue streams provide a solid foundation for organic growth. Its diversified business model ensures resilience and growth potential, even in volatile market conditions. Resilient M&A pipelines and solid trading revenues are other positives.
However, the likelihood of a significant IB rebound this year remains low amid the concerns regarding tariff policies, making MS stock a cautious bet. Additionally, the stock’s premium valuation and mixed analyst sentiment warrant careful consideration before investing.
In light of these concerns, year to date, the company has underperformed the industry, the Zacks Finance Sector, and the S&P 500 index. Further, it has fared worse than its peers, JPMorgan and Goldman Sachs.
Year-to-Date Price Performance
Current shareholders may benefit from holding for strong long-term returns, while potential investors should wait for greater macroeconomic clarity before taking a position.
Morgan Stanley currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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