Morgan Stanley cuts East West Bancorp stock rating to Equalweight

On Monday, Morgan Stanley (NYSE:MS) issued a downgrade for East West Bancorp (NASDAQ:EWBC) shares, moving from an Overweight to an Equalweight rating, while also reducing the price target to $90.00 from the previous $118.00. The stock has declined 17.51% in the past week, with InvestingPro data showing four analysts revising their earnings expectations downward. The revision reflects Morgan Stanley’s adjusted expectations for the company’s financial performance, taking into account East West Bancorp’s guidance on loan growth and net charge-offs (NCOs).

The firm’s analysts now project a year-over-year end-of-period loan growth of 3% for 2025, which falls short of East West Bancorp management’s forecast of a 4-6% increase. Additionally, Morgan Stanley anticipates a 2025 NCO ratio of 0.34%, aligning with the upper end of the company’s projected range of 25-35 basis points. According to InvestingPro, the bank maintains a solid financial health score of GOOD, with current metrics indicating the stock is trading below its Fair Value.

Despite the downgrade, Morgan Stanley acknowledges the bank’s solid foundations, noting East West Bancorp’s substantial common equity tier 1 (CET1) capital ratio of approximately 14% and its history of performance exceeding that of its peers. The analysts maintain a positive long-term view of East West Bancorp, citing the company’s high-quality franchise and strong capital levels.

The report suggests that East West Bancorp may leverage its surplus capital to implement more aggressive share buybacks, which could help mitigate the impact of potentially lower net income on its stock value. Morgan Stanley’s stock ratings are based on a one-year investment horizon, and within this timeframe, the firm has adjusted its outlook on East West Bancorp’s stock.

In other recent news, East West Bancorp reported its fourth-quarter earnings, which narrowly missed analyst expectations. The company posted a net income of $293 million, or $2.10 per diluted share, slightly below the anticipated $2.11 per share. However, revenue for the quarter exceeded expectations, coming in at $675.79 million compared to the consensus estimate of $658.3 million. For the full year 2024, East West Bancorp achieved a net income of $1.2 billion, or $8.33 per diluted share, marking a slight increase from the previous year. The bank experienced robust deposit growth, with deposits increasing by over $7 billion, and fee income rising 12% year-over-year.

Fitch Ratings recently upgraded East West Bancorp’s Long-Term Issuer Default Ratings from ’BBB’ to ’BBB+’, citing the company’s strong earnings power and robust capital levels. Despite potential risks from cross-border business lines, the bank has maintained profitability above its peers. Additionally, East West Bancorp announced a 9% increase in its common stock dividend and a $300 million share repurchase authorization. These developments reflect the bank’s strategic initiatives and solid financial position.

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