Morgan Stanley is breaking out to record levels. Using options to ride the move higher

Morgan Stanley (MS) has broken out to new all-time highs above $145 on above-average volume, signaling potential trend extension and institutional accumulation. This move is underpinned by strong Q2 FY25 results, reporting $16.8 billion in revenue and $2.13 EPS, driven by robust performance in both Institutional Securities and Wealth Management. The firm also reinforced its outlook with a raised quarterly dividend of $1.00 and a re-authorized $20 billion multi-year buyback, reflecting management confidence and a solid capital position. Despite its strong profitability and expectations for normalizing capital markets and deal activity into 2025/2026, MS continues to trade at an attractive valuation discount to peers, offering a compelling setup.

Analysis

Morgan Stanley (MS) is exhibiting strong bullish signals, underscored by a technical breakout to a new all-time high above the $145 resistance level on above-average volume. This price action is supported by improving relative strength against the financial sector, suggesting potential institutional accumulation. Fundamentally, the firm's recent Q2 FY25 results provide a solid foundation, with revenue reaching $16.8 billion and EPS at $2.13, driven by strength in both its Institutional Securities and Wealth Management divisions. Management confidence is further reflected in aggressive capital return initiatives, including a dividend increase to $1.00 per share and the authorization of a new $20 billion multi-year share buyback program. Despite this positive performance, which includes delivering an 18% Return on Tangible Common Equity (ROTCE), MS trades at a valuation discount on both P/E and P/B multiples compared to its large-cap peers. This attractive valuation, combined with management's expectation of a stronger IPO and dealmaking environment into the second half of 2025, presents a compelling setup if capital markets activity continues to normalize.

Key Decisions for Investors

• Given the confluence of a technical breakout, strong Q2 earnings, and robust capital returns, investors with a positive outlook on capital markets could view Morgan Stanley as a compelling long position.
• The valuation discount relative to peers, despite strong profitability metrics like an 18% ROTCE, may offer a potential for multiple re-rating and outperformance if the anticipated recovery in dealmaking materializes.
• Investors should monitor the $145 level as a key technical support, as a sustained hold above this price confirms the breakout thesis, while defined-risk strategies like the suggested call vertical could be considered to express a bullish view with controlled capital exposure.