Morgan Stanley (MS)

Global financial services firm Morgan Stanley (NYSE:MS) announced better-than-expected revenue in Q3 CY2025, with sales up 18.5% year on year to $18.22 billion. Its GAAP profit of $2.80 per share was 32.6% above analysts’ consensus estimates.

Company Overview

Founded in 1924 during the post-WWI economic boom by former JP Morgan partners, Morgan Stanley (NYSE:MS) is a global financial services firm that provides investment banking, wealth management, and investment management services to corporations, governments, institutions, and individuals.

Investment banks and brokerages facilitate capital raises, mergers and acquisitions, and securities trading. The sector benefits from corporate activity during economic expansion, increased retail trading participation, and advisory opportunities in emerging sectors. Headwinds include economic cycle vulnerability affecting deal flow, compressed trading commissions due to electronic platforms, and regulatory capital requirements constraining certain higher-risk activities.

Morgan Stanley's primary competitors include other major global investment banks such as Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Bank of America Merrill Lynch (NYSE:BAC), and Citigroup (NYSE:C), as well as wealth management firms like Charles Schwab (NYSE:SCHW) and asset managers including BlackRock (NYSE:BLK).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Morgan Stanley’s 8.4% annualized revenue growth over the last five years was decent. Its growth was slightly above the average financials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Morgan Stanley’s annualized revenue growth of 13% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Morgan Stanley reported year-on-year revenue growth of 18.5%, and its $18.22 billion of revenue exceeded Wall Street’s estimates by 9.2%.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Investment Banking & Brokerage companies track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

We pay attention to efficiency ratios, but we and the market care most about how they’ve trended over time. Said differently, has the company become more or less efficient? It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last four years, Morgan Stanley’s efficiency ratio has increased by 2 percentage points, going from 66.7% to 68.7%. Luckily, it seems the company has recently taken steps to address its expense base as its efficiency ratio improved by 6.3 percentage points on a two-year basis.

Morgan Stanley’s efficiency ratio came in at 67% this quarter, beating analysts’ expectations by 478 basis points (100 basis points = 1 percentage point). This result was 5 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Morgan Stanley’s EPS grew at a decent 10.5% compounded annual growth rate over the last five years, higher than its 8.4% annualized revenue growth. However, we take this with a grain of salt because its efficiency ratio didn’t improve and it didn’t repurchase its shares, meaning the delta came from factors we consider non-core or less sustainable over the long term.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Morgan Stanley’s two-year annual EPS growth of 32.2% was fantastic and topped its 13% two-year revenue growth.

We can take a deeper look into Morgan Stanley’s earnings quality to better understand the drivers of its performance. Morgan Stanley’s efficiency ratio has improved over the last two yearswhile its share count has shrunk 3.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Morgan Stanley reported EPS of $2.80, up from $1.88 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Morgan Stanley’s full-year EPS of $9.75 to stay about the same.

The balance sheet drives profitability for financial firms since earnings flow from managing diverse assets and liabilities across multiple business lines. As such, valuations for these companies concentrate on capital strength and sustainable equity accumulation potential across their varied operations.

When analyzing this sector, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value and provides insight into the institution’s capital position across diverse operations. On the other hand, EPS is often distorted by the diverse nature of operations, mergers, and various accounting treatments across different business units. Book value provides clearer performance insights.

Morgan Stanley’s TBVPS grew at a sluggish 1.7% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 9.6% annually over the last two years from $40.53 to $48.64 per share.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Morgan Stanley has averaged an ROE of 12.5%, respectable for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Morgan Stanley has averaged a Tier 1 capital ratio of 15.5%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

It was good to see Morgan Stanley beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 3.9% to $161.49 immediately after reporting.

Updated: December 3, 2025 at 11:31 PM EST

Are you wondering whether to buy Morgan Stanley or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Morgan Stanley doesn’t top our investment wishlist, but we understand that it’s not a bad business. First off, its revenue growth was decent over the last five years. And while Morgan Stanley’s TBVPS growth was weak over the last five years, its above-average ROE suggests its management team has made good investment decisions.

Morgan Stanley’s P/E ratio based on the next 12 months is 16.2x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $169.57 on the company (compared to the current share price of $174.10).