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Zacks Industry Outlook Highlights Morgan Stanley, The Goldman Sachs and Piper Sandler

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For Immediate Release

Chicago, IL – May 9    , 2024 – Today, Zacks Equity Research discusses Morgan Stanley (MS - Free Report) , The Goldman Sachs Group, Inc. (GS - Free Report) and Piper Sandler Companies (PIPR - Free Report) .

Industry: Investment Banks


Given the reversal in corporate debt and equity issuances and deal-making activities, the Zacks Investment Bank industry is expected to witness a turnaround in investment banking fees in the quarters ahead.

Also, decent client activity in the trading business is expected to continue as uncertainty-induced volatility is likely to persist in the near term. While costs related to technological upgrades might impede bottom-line growth, industry players will eventually witness improved operating efficiency. These factors will keep aiding investment banks like Morgan Stanley, The Goldman Sachs Group, Inc. and Piper Sandler Companies.

Industry Description

The Zacks Investment Bank industry consists of firms that provide financial products and services that include advisory-based financial transactions to corporations, governments and financial institutions worldwide. These started as partnership firms focused on initial public offerings (IPOs), secondary equity offerings, brokerage and mergers and acquisitions (M&As).

Gradually, the companies have evolved into providers of various other services, including securities research, proprietary trading and investment management. Therefore, the industry players work mainly through three product segments — investment banking (M&As, advisory services and securities underwriting), asset management and trading and principal investments (proprietary and brokerage trading).

3 Themes to Influence the Investment Bank Industry

Resurgence in Underwriting and Advisory Businesses: After a sustained weakness in underwriting, IPOs and deal-making activities since 2022 due to geopolitical tensions, global supply-chain disruptions, aggressive monetary policy tightening worldwide to control inflation and potential recession risks, green shoots in advisory and underwriting businesses are visible with the deal pipeline looking healthy.

With the macroeconomic environment steadying and the corporates globally adjusting to the high-rate regime, global underwriting and M&A activities are expected to rebound in the coming days. Though the ride will likely be bumpy for investment banks in the near term, the improving operating backdrop will support the industry players’ revenue growth.

Trading Business Offers Some Support: Client activity in the trading business largely depends on the prevalent macroeconomic and geopolitical conditions. Since 2022, market volatility has significantly increased due to several geopolitical and macroeconomic headwinds. Though there has been some stability in the macroeconomic backdrop, markets continue to grapple with high global inflation, high interest rates and other geopolitical matters. So, trading volumes will likely remain decent, driven by solid client activities in equity and fixed-income businesses, thereby boosting industry players’ trading income.

Technology to Improve Operating Efficiency: Innovative trading platforms, the use of artificial intelligence (AI) and investments in technology and advertising are likely to aid the operations of investment banks. The industry players are attracting and retaining the best talent for building a leadership team and spending heavily on technology to help clients with infrastructure development and new platforms. While investment banks will likely face increasing technology-related expenses in the near term, these initiatives are expected to improve operating efficiency over time.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Investment Bank industry is a 14-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 245 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised 34.2% upward.

Before we present a few stocks that you may want to bet on, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks Investment Bank industry has underperformed its sector and the S&P 500 over the past year. While stocks in the industry have collectively gained 36.4%, the S&P 500 composite has rallied 26.2% and the Zacks Finance sector has risen 23.7%.

Industry Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), commonly used for valuing investment banks because of significant variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 4.68X, above the median level of 3.31X, over the past five years. The industry is trading at a considerable discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 10.96X and the median level is 10.33X.

Finance stocks typically have a lower P/TBV ratio, so comparing investment banks with the S&P 500 may not make sense to many investors. However, comparing the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV ratio of 4.79 and the median level of 4.34 for the same period are above the Zacks Investment Bank industry’s respective ratios.

3 Investment Banks Worth Investing

Morgan Stanley: This Zacks Rank #1 (Strong Buy) stock operates globally as an investment banking, securities and investment management company. Based in New York, the key source of Morgan Stanley’s earnings stability is its business diversification initiatives. You can see the complete list of today’s Zacks #1 Rank stocks here.

Morgan Stanley has been undertaking several initiatives aimed at increasing reliable revenue sources. Strategic expansion efforts, including the acquisitions of Eaton Vance, E*Trade Financial and Shareworks, are in sync with its efforts to focus less on a capital markets-driven revenue mix.

In a move that signals their commitment to further collaboration and innovation, last year, Mitsubishi UFJ Financial Group, Inc. and Morgan Stanley announced the launch of "Alliance 2.0". This 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 will be rearranged between the two brokerage units. These efforts will solidify the company’s position in Japan’s market.

A favorable macroeconomic backdrop is expected to revive its investment banking (IB) business, thereby further strengthening Morgan Stanley’s financials going forward. The demand for both advisory and underwriting businesses will likely rise as corporates realize that higher interest rates are here to stay for a longer period.

Though steadily increasing expenses pose a headwind, a strong balance sheet, higher rates, reversal in investment banking performance and investment-grade long-term ratings from leading credit rating agencies are likely to continue aiding growth.

With a market cap of $154 billion, MS is expected to continue benefiting from its scale and business expansion efforts. Its shares have jumped 29.1% in the past six months. The Zacks Consensus Estimate for 2024 earnings has moved 1% upward to $6.84 in the past week.

Goldman: This Zacks Rank #2 (Buy) company is a leading global provider of investment banking, securities, investment management and consumer banking services. Based in New York, Goldman has offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers globally.

Like Morgan Stanley, the key to the company’s financial stability is its business restructuring efforts. GS intends to refocus its business on its core strengths of IB and trading while scaling back its consumer banking footprint. As part of this effort, in March, the company completed the sale of GreenSky, its home-improvement lending platform. Further, last year, it divested the Personal Financial Management unit.

Goldman also aims to halt unsecured loan offerings to consumers through Marcus. In 2023, it sold substantially all of Marcus’s loan portfolio instalments.

Further, robust client engagement, backed by digital disruption and transformation trends, signs of growing M&A and underwriting pipelines; and global expansion efforts will keep supporting Goldman’s prospects over time.

Goldman has a market cap of $143.1 billion. Over the past six months, the company’s shares have rallied 4.5%. The Zacks Consensus Estimate for ongoing-year earnings has been revised almost 1% north to $36.07 in the past seven days.

Piper Sandler: This Zacks Rank #1 company operates as an investment bank and institutional securities firm. The company, based in Minneapolis, MN, offers investment banking and institutional sales, trading and research services. Also, PIPR provides advisory and underwriting services.

The company has been enhancing its scale and capabilities through strategic buyouts. These have not only diversified its revenue base but also expanded PIPR’s sector coverage, geographical footprint and market share.

Thus, through its scaled platform, Piper Sandler has been witnessing robust top-line growth. As the company continues to hire exceptional talent and broadens industry and product coverage, further top-line growth is anticipated despite near-term industry-wide headwinds.

PIPR has a market cap of $3.3 billion. Over the past six months, shares of the company have surged 51%. The Zacks Consensus Estimate for 2024 earnings has remained unchanged at $11.82 over the past week.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit  for information about the performance numbers displayed in this press release.

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