Two well-known global investment banks – Goldman Sachs (GS Quick QuoteGS - Free Report) and Morgan Stanley (MS Quick QuoteMS - Free Report) – have been in the spotlight since the U.S. presidential election results were announced on Nov. 6. With the new administration soon in place, deal-making activities are expected to soar in 2025 after witnessing a strong resurgence this year. 

The new administration plans to adopt a more lenient approach to deal-making, signaling the end of an era marked by prolonged regulatory scrutiny. This, along with a favorable interest rate environment, strong economic growth and a solid deal pipeline, set the stage for a revitalized investment banking (IB) business in 2025. Against this backdrop, GS and MS are poised to remain at the forefront as capital markets activity experiences a notable resurgence.

Before adding Goldman or Morgan Stanley to your portfolio, their financial performance, valuation metrics and growth strategies should be thoroughly analyzed.

GS & MS Stock Performance Analysis

Goldman shares have surged 49% this year, outpacing Morgan Stanley’s 37% rise. Also, GS is trading above the Zacks Investment Bank industry and the S&P 500 Index, which rallied 41.4% and 28.3%, respectively. 

Year-to-Date Stock Performance
 

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Stock Valuation Comparison Between GS & MS

In terms of valuation, Goldman holds a notable advantage over Morgan Stanley, with a significant gap between the two. Goldman’s trailing 12-month price-to-tangible book (P/TBV) ratio is 1.76, making its shares more attractive to Morgan Stanley’s 2.87. 

Price-to-Tangible Book Ratio (TTM)
 

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Further, GS stock is trading at a discount compared with the industry’s trailing 12-month P/TBV of 2.66X. This makes the stock more promising for value investors.

However, Morgan Stanley’s premium valuation compared with GS and the industry exposes it to greater downside risk.

Goldman & Morgan Stanley’s Unique Business Models

Goldman is sharpening its focus on its core strengths in IB and trading while scaling back its consumer banking footprint. The strategic pivot aligns with the company’s efforts to concentrate on areas where it has consistently demonstrated strong performance. Leveraging its leadership position, extensive operational scale and exceptional talent, the company aims to bolster its core businesses and drive growth in areas where it has a competitive edge.

In contrast, Morgan Stanley has reduced its reliance on capital markets for income generation. The company’s focus on expanding its wealth and asset management operations and the strategic acquisitions, including Eaton Vance, E*Trade Financial and Shareworks, are steps 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 57% in 2023 from 26% in 2010.

Goldman & Morgan Stanley’s Impressive Capital Distributions

GS and MS are part of globally systematically important financial institutions (G-SIFI). Hence, they are subject to annual stress tests held by the Federal Reserve to get clearance for the capital distributions. 

After clearing this year’s stress test, both companies raised quarterly dividends. Goldman increased its dividend by 9.1% to $3 per share. In the past five years, it hiked dividends four times, with an annualized growth rate of 24.8%. Similarly, MS hiked its quarterly dividend by 8.8% to 92.5 cents per share. It has also raised dividends four times in the past five years, with an annualized growth rate of 27.85%. 

At present, MS has a dividend yield of 2.90%, which is higher than the industry average of 2.12% and Goldman’s yield of 2.09%. This positions Morgan Stanley as a more attractive option for income-focused investors.

Dividend Yield
 

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GS also has a share repurchase plan in place. In February 2023, it announced a share repurchase program, authorizing the buyback of up to $30 billion worth of shares. As of Sept. 30, 2024, the company had $18 billion worth of shares under authorization remaining. On the other hand, Morgan Stanley reauthorized a new multi-year share repurchase program of up to $20 billion in July 2024, with no expiration date. As of Sept. 30, 2024, approximately $19.25 billion shares remained available under the authorization.

Goldman & Morgan Stanley’s Hurdles

Goldman and Morgan Stanley face challenges that could hinder their short-term growth prospects. These headwinds include rising operating costs and regulatory changes that could create uncertainties for both companies. Goldman’s operating expenses witnessed a three-year (2020-2023) compound annual growth rate (CAGR) of 6%. Similarly, Morgan Stanley’s total expenses recorded a CAGR of 7.6% in the same time frame. Both companies’ ongoing investments in technology and market development for business expansion are expected to keep costs elevated.

Additionally, being geographically diversified and highly dependent on overseas revenues, risks stemming from the regulatory and political environment, foreign exchange fluctuations and the performance of regional economies may hurt companies’ top line.

Goldman & Morgan Stanley’s Financial Performance and Prospects

The last two years were challenging for Goldman and Morgan Stanley as deal-making activities came to a grinding halt. Hence, both witnessed a decline in earnings in 2022 and 2023 on lower revenues that were hurt by weak IB performance. Nonetheless, a substantial improvement in the industry-wide deal value and volume in the first nine months of 2024 drove the global M&As. As such, GS and MS recorded an improvement in the top and bottom lines. 

For nine months ended Sept. 30, 2024, Goldman’s earnings jumped a whopping 65% on revenue growth of 13%. The company’s rank #1 in announced and completed M&As is driving this solid performance. During the same time frame, Morgan Stanley posted a 32% increase in earnings, with revenues rising 10%. 

The Zacks Consensus Estimate for 2024 earnings for GS and MS implies year-over-year growth of 62.4% and 34.3%, respectively. Further, both are expected to record earnings growth next year.

Earnings Estimates for GS
 

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Earnings Estimates for MS
 

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

To Buy or Not to Buy GS/MS Stock Now

Goldman and Morgan Stanley, two major players in the IB industry, have their strengths. GS leads in stock performance this year and has better valuation metrics, while MS stands out with its stronger dividend yield.

Further, Goldman thrives during periods of robust dealmaking and market activity, which is expected to occur in 2025. In contrast, Morgan Stanley has a balanced business model, which provides stability and growth potential, even during volatile markets.

However, both companies face headwinds in the near term. Increasing expenses and regulatory challenges could hinder their market positions and financial health. While both companies maintain strong long-term growth potential, these factors suggest caution for those considering new investments. Those already holding Goldman and/or Morgan Stanley in their portfolio can retain them as both are well-poised to generate solid returns over the long run.

But this does not appear to be the right time to buy either GS or MS, both carrying a Zacks Rank #3 (Hold). Investors should closely monitor the developments in the IB industry and the impacts of deregulation before making any decisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.