Goldman Sachs, Morgan Stanley downgraded on valuation, BNY Mellon upgraded on significant buyback capacity

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By Sam Boughedda

Wolfe Research downgraded Goldman Sachs (NYSE:GS) to Peer Perform, upgraded Bank of New York Mellon (NYSE:BK) to Outperform, and downgraded Morgan Stanley (NYSE:MS) to Underperform in three separate notes on Wednesday.

Analysts said the rating changes are based on the firm's 2023 outlook.

They downgraded Goldman Sachs from Outperform, with no price target, telling investors the key drivers of the downgrade include: "1) Valuation: While shares are undemanding on a P/TBV lens (1.2x), valuation on P/E appears more full (~10x), with shares trading in line with the 10Y avg. on NTM cons. EPS; 2) Basel IV poses a threat to GS returns/valuation; 3) Downside risk to 2023 / 2024 cons. Trading / IB estimates; and 4) Credit costs surprising negatively due to increased Card gearing/cautious outlook for the lower-end consumer."

On BNY Mellon, Wolfe Research stated the key drivers include: "1) Mid-teens % upside to cons. NII due to underappreciated reinvestment tailwinds; 2) Room for meaningful efficiency gains; 3) Significant buyback capacity even under a tougher Basel IV capital regime; and 4) Attractive valuation."

Finally, for Morgan Stanley, the analysts write that their valuation screens rich, NII is likely to peak in 4Q22, its organic growth will likely run below target levels into 2023, Basel IV presents a risk to returns and valuation, and the company has a higher equity market sensitivity.