Balanced View on Morgan Stanley - Analyst Blog
March 12 2013 - 1:25PM
Zacks
On Mar 11, 2013, we reaffirmed our Neutral recommendation on
Morgan Stanley (MS) based on its
better-than-expected results, overall growth initiatives (through
organic and inorganic means) and clearance of Federal Reserve’s
Stress Test. However, elevated cost structure, stringent regulatory
landscape and sluggish economic recovery is likely to mar its
profitability in the near to mid term.
Why the Neutral Stance?
Though Morgan Stanley’s earnings were substantially better than the
year-ago loss, it had marginally exceeded the Zacks Consensus
Estimate. The decent quarterly results for Morgan Stanley were
attributable to top-line growth, partially offset by continued high
operating expenses.
Further, in the past 30 days, a few estimates have moved up,
resulting in only a 0.5% improvement in the Zacks Consensus
Estimate for 2013. Estimates for 2014 have also improved by 1.2%
over the same period. In addition, over the past 4 quarters, the
average earnings surprise has been a decent 20.3% for this Zacks
Rank #3 (Hold) stock.
Morgan Stanley is significantly diversifying its footprint and
product portfolio, enjoying top-tier global capital markets
authorization and solid international prospects in the long term
through added consistency from private clients and asset management
units. Also, the company continues to expand inorganically.
It has cleared the latest rounds of Stress test; therefore, it is
likely that following the prioritized acquisition of remaining
stake in Morgan Stanley Wealth Management, the company will enhance
dividend payments and restart share buybacks.
Yet, for Morgan Stanley, increasing expenses remain a concern.
Though operating expenses in 2012 decreased nearly 2% from 2011, we
anticipate it to remain high in the near term, as restructuring
initiatives announced to reduce costs are expected to take time to
show the positive impact. Further, Morgan Stanley’s profitability
is expected be affected by the financial reform law due to higher
costs and fee restrictions.
Additionally, slow economic recovery will create cyclical pressures
in the weak commercial real estate sector, increasing concerns over
the near term.
Other Stocks to Consider
Other stocks that are performing well and are worth considering in
the same sector include Evercore Partners Inc.
(EVR), Knight Capital Group, Inc. (KCG) and
Piper Jaffray Companies (PJC). All these stocks
carry a Zacks Rank #1 (Strong Buy).
EVERCORE PARTNR (EVR): Free Stock Analysis Report
KNIGHT CAP GP (KCG): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
PIPER JAFFRAY (PJC): Free Stock Analysis Report
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