Macquarie Group Ltd (ASX: MQG) shares have gathered steam lately, with a 3% rise in the past month of trade.
Over the past year, however, Macquarie shares have underperformed the S&P/ASX 200 Banks Index (ASX: XBK) by more than 15.5%
The recent momentum hasn't gone unnoticed. Analysts at leading broker Morgan Stanley have a promising outlook on the bank and see further upside potential for the ASX banking stock.
Here's a look at the broker's insights.
Macquarie shares could grow
Morgan Stanley analyst Andrei Stadnik laid out the case for owning Macquarie shares in a recent note to clients.
The analyst highlighted Macquarie has its fingers in many pies, ranging from mergers and acquisitions (M&A), alternative assets and private credit
It's worth noting Macquarie also holds equity stakes in seven data centres worldwide. Point is – these are all high-growth domains.
"Macquarie is the overall standout beneficiary of private markets flywheel re-accelerating in our Australian coverage", Stadnik said, according to The Australian.
Stadnik project's 22% earnings growth for the bank in FY 2025, driven by a stronger market for capital raising, and its various sources of revenue.
At its full-year FY 2024 results in May, the company reported that earnings per share (EPS) were down 32% year over year to $9.17 apiece.
Even with a dip in operating profits this year, the bank achieved a 13% return on equity (ROE) in H2 FY 2024, surpassing the industry's five-year average of 11%. It paid shareholders a dividend of $6.40 per share.
That means if the broker is right, Macquarie could produce $11.18 in EPS for FY 2025.
Morgan Stanley set a buy rating on Macquarie shares with a price target of $215 per share. At the current share price of $196.30, this represents a potential 10% upside.
According to CommSec, the consensus of broker ratings is a moderate buy on Macquarie shares. While 6 have it as a buy, 6 also have it as a hold, with 2 rating the stock as a sell at the time of writing.
Potential competitive advantage
Macquarie sets itself apart from other Australian banks through its diversified services. It operates in investment, asset management, commodities, and infrastructure.
In my view, this broad exposure gives Macquarie more recession-proof earnings compared to banks solely reliant on their net interest margins (NIMs).
The bank's current price-to-earnings (P/E) ratio is 21 times, meaning investors are paying $21 for every $1 of its earnings. This does not include dividends.
Meanwhile, they are paying around $18 for every $1 of the iShares Core S&P/ASX 200 ETF (ASX: IOZ). Perhaps investors are paying more because they expect more. We shall find out.
