On Jun 26, 2013, we reaffirmed our long-term recommendation on Morgan Stanley (MS) at Neutral. The reiteration was based on regulatory approvals that the company received for acquiring the remaining interest in MSWM JV. Nevertheless, Morgan Stanley continues to face persistently high operating expenses.
Why Neutral?
In Jun 2013, Morgan Stanley received all regulatory approvals to purchase the remaining 35% stake in Morgan Stanley Wealth Management (MSWM) – its wealth management joint venture (JV) with Citigroup Inc. (C). Once the company fully controls the JV, it will get one of the largest retail platforms, thereby lowering its dependence on volatile trading revenues. Moreover, the additional free capital will likely be deployed to enhance shareholder value.
Further, Morgan Stanley’s adjusted earnings from continuing operations beat the Zacks Consensus Estimate. Better-than-expected results were mainly driven by declining operating expenses, partially offset by a decrease in revenues.
Further, estimates over the past 90 days have been increasing, with the Zacks Consensus Estimate for 2013 moving up by a penny to $2.13 per share. Moreover, for 2014, the Zacks Consensus Estimate increased 1.7% to $2.60 over the same time frame. Morgan Stanley currently carries a Zacks Rank #3 (Hold).
Though the company’s operating expenses fell in the first quarter, we anticipate them to remain high in the near term, as restructuring initiatives announced will likely take time to benefit the financials. Further, these initiatives are not expected to fully control costs as the company continues to invest in franchise.
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