(Bloomberg) -- Morgan Stanley got its first bearish call from an analyst this year, as Wells Fargo & Co.’s Mike Mayo lowered the stock to underweight from equalweight and said its valuation looks rich given pressure on some businesses.
Mayo said the bank’s wealth management unit faces headwinds and that its industry-leading valuation appears too high. The downgrade leaves him with the only sell-equivalent recommendation among more than two dozen analysts covering the stock, according to data compiled by Bloomberg.
The analyst also cited downward pressure on net interest income and accelerating insider sales.
“Morgan Stanley is overvalued relative to other large cap banks,” Mayo wrote in a note dated Aug. 1. “Expectations seem too high.”
Morgan Stanley shares fell 5.8% on Friday, the most since October, amid a broader drop in US stocks as monthly labor data came in weaker than expected and traders ramped up bets on Federal Reserve interest-rate cuts this year.
The bank’s stock has trailed its biggest peers this year, as well as the overall market. The stock is up 2.8% this year while the S&P 500 has gained about 12%. Morgan Stanley has a higher forward price-to-earnings valuation than its rivals, Mayo says.
The stock has 8 buy, 16 hold and 1 sell-equivalent recommendations, according to data compiled by Bloomberg. That gives it the lowest consensus recommendation since 2012. This week, Wall Street rival Goldman Sachs Group Inc. surpassed Morgan Stanley in market capitalization for the first time since 2020.
Morgan Stanley doesn’t seem poised to benefit as much as Goldman from an improvement in capital markets activity, Mayo said.
“If there is a capital markets boom, our numbers for MS could turn out as too low, but under that scenario we’d expect GS to benefit more,” Mayo wrote.
--With assistance from Emily Forgash.
(Updates shares for market close.)
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