Morgan Stanley downgrades Flagstar Bank to Underweight, cuts price target to $12

Morgan Stanley changes its Flagstar rating and target

Morgan Stanley downgraded Flagstar Bank to Underweight from Overweight and lowered its price target to $12 from $15, according to reports published November 4. The firm said higher interest rates were delaying Flagstar's turnaround more than expected.

The downgrade makes Morgan Stanley the sole Underweight-rated analyst on the stock, according to Investing.com's review. At the time of that report, Flagstar shares traded at $10.54.

Morgan Stanley forecasts below Flagstar's guidance

Morgan Stanley's 2027 earnings-per-share estimate was 58 cents, 32% to 39% below Flagstar's company guidance of 85 cents to 95 cents and 22% below the 74-cent consensus estimate cited in the report. The firm's 2027 and 2028 net interest income estimates of $2.066 billion and $2.445 billion were also below Flagstar's respective guidance ranges of $2.2 billion to $2.3 billion and $2.6 billion to $2.7 billion.

The revised outlook reflects lower net interest income, higher provisions and a higher share count, according to the report. Morgan Stanley modeled the high end of Flagstar's $175 million to $225 million provision guidance for 2027 and kept its assumption for buybacks on hold until the third quarter of 2027.

Further guidance reductions are expected

Morgan Stanley expects additional cuts to Flagstar's 2027 guidance and believes those reductions were not reflected in consensus estimates. TipRanks' account of the analyst action likewise attributed the lower rating and target to the expectation of further guidance cuts.

The firm's updated $12 target implied 14% upside for Flagstar shares in the report, compared with 26% for the median company in Morgan Stanley's coverage universe and 34% for stocks rated Overweight.

Flagstar's latest reported quarter fell short

Contextual reporting said Flagstar announced its latest quarterly results on October 23. It reported adjusted earnings of $0.01 per share on $530 million in revenue, compared with Wall Street expectations of $0.07 per share and $545.77 million in revenue, according to Investing.com.

The same review said the shares had declined 24% over the preceding six months. It also reported that 15 analysts had revised earnings estimates downward for the upcoming period, based on InvestingPro data.

The next measurable point in Morgan Stanley's outlook is whether Flagstar updates its 2027 guidance and whether the bank's reported earnings, net interest income and credit provisions develop in line with the lower assumptions behind the downgrade.