Looking Beyond the Q4 Overhang

Research evidence excerpt

Morgan Stanley & Co. International plc+ , with our constructive view underpinned by the group's solid and relatively defensive core revenue growth, which continues to stand out against a backdrop of ongoing weakness and uncertainty across the broader consumer discretionary sector in our view. While the shares have materially underperformed and derated YTD - primarily reflecting concerns around smartglasses and uncertainty regarding corporate governance (amid recent newsflow on Delfin shareholders and question marks on management change; link) - we believe the underlying core business remains intact. Importantly, following a significant rebasing of earnings expectations over the course of the year, consensus estimates are now increasingly in a reasonable place, while valuation has also become less demanding, with the shares trading on ~19x FY27 P/E MSe. We believe this provides a more supportive backdrop looking into 2027, although acknowledge that nearterm catalysts remain limited.

Key Points

Near-term, we acknowledge limited catalysts. The key challenge remains the Q4 lapping an exceptionally tough comparison base (+18.4% constant-currency growth in Q4 last year), which we understand benefited from a significant smart-glasses sell-in to META. We model Q4 revenues declining 1% constant-currency, and believe the prospect of negative top-line growth, even if largely driven by the comparison base, is likely to constrain investor

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