Morgan Stanley’s stock took a hit on Wednesday as UBS analyst Brennan Hawken downgraded the megabank’s rating from buy to neutral. In addition to the rating cut, Hawken also lowered his target price for Morgan Stanley shares from $110 to $84. This adjustment reflects his belief that the stock is currently fairly priced.
Moreover, Hawken reduced his earnings estimate for Morgan Stanley in the third quarter. His forecast of $1.26 per share represents a 17% decrease from the previous estimate. This figure falls below the current FactSet consensus forecast of $1.31 per share.
As a result of these changes, Morgan Stanley’s stock experienced a 0.6% decline. In contrast, other bank stocks, such as the Financial Select Sector SPDR exchange-traded fund (XLF) and the SPDR S&P Bank ETF (KBE), saw modest gains of 0.2% and 0.5%, respectively.
Morgan Stanley will be the final of the six megabanks to release its third-quarter earnings report on October 18th. However, Hawken expressed caution about the bank’s ability to surpass consensus estimates. He cited several obstacles that Morgan Stanley currently faces, including challenges in deposit sorting and yield-seeking, fierce competition for talent, and a difficult revenue environment.
In the second quarter, wealth-management sweep deposits declined by 43% compared to the previous year. Hawken expects another 7% drop in the third quarter.
Despite Morgan Stanley’s successful transformation towards a focus on wealth management and impressive growth in the wirehouse peer-leading profile, these headwinds pose significant challenges for the bank, according to Hawken.
Overall, Morgan Stanley’s stock downgrade by UBS has drawn attention to the obstacles the company must overcome to achieve sustained success.