Shares of Morgan Stanley (MS) have recorded a solid year-to-date return of 58.1%. Organic growth, strong capital deployment activities and strategic acquisitions drove the strong price appreciation. Hence, keeping its shares in your portfolio should not disappoint.
However, we are not confident about these factors translating into further strength down the road, as there will be pressure on the company’s bottom line due to the sluggish economic recovery and stringent regulatory requirements. Hence, we discourage fresh addition of Morgan Stanley shares to your portfolio.
Why This Stance?
Morgan Stanley’s third-quarter 2013 earnings per share beat the Zacks Consensus Estimate. Results were driven by rise in the top line and lower-than-expected expenses. However, reduced client activity and fall in market volumes for all products led to a decline in Fixed Income & Commodities sales and deterioration in trading results.
Amid the challenging macroeconomic environment, Morgan Stanley enjoys a competitive edge over its peers due to consistent growth in its core Institutional Securities’ franchise. Moreover, in the last few quarters, the company undertook restructuring activities to reduce balance sheet risks and maintain stable earnings. Further, the acquisition of Morgan Stanley Wealth Management (MSWM) is expected to reduce the company’s dependence on volatile trade revenues.
However, Morgan Stanley’s top-line growth is expected to be sluggish in the next few quarters owing to its increased cost structure. Moreover, significant exposures in structured investment vehicles, commercial mortgage-backed securities and commercial real estate sector might limit earnings growth, given the prevailing economic uncertainty.
Additionally, when it comes to estimate revision, the trend was mixed. Over the last 30 days, the Zacks Consensus Estimate for 2013 declined nearly 1% to $2.04 per share while it remained almost flat at $2.54 per share for 2014. Hence, Morgan Stanley now carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
If you are interested in the finance sector, you may consider a few better-ranked stocks like First Interstate Bancsystem Inc. (FIBK), PrivateBancorp, Inc. (PVTB) and Mainsource Financial Group (MSFG). All these have a Zacks Rank #1 (Strong Buy).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment