On Dec 5, 2014, we issued an updated research report on Morgan Stanley (MS). The company continues to benefit from its restructuring initiatives as well as organic and inorganic expansion plans focusing mainly on less capital intensive operations.
Morgan Stanley enjoys a considerable competitive advantage as an investment bank, based on the relatively consistent growth momentum in its core Institutional Securities’ franchise. The company’s net revenue has grown at a 5-year CAGR of 8.7% (2009-2013), with the trend continuing for nine-month ended Sep 30, 2014. We believe the company’s measures to stabilize earnings will likely be beneficial in the long run.
Further, Morgan Stanley has been steadily lowering its fixed income and commodities risk-weighted assets (RWAs) through a combination of passive mitigation and active business unit management. We expect reduced RWAs to free up capital, which in turn, will be utilized for boosting shareholders’ value as well as for investment purposes going ahead.
On the flip side, elevated operating expenses at Morgan Stanley make us apprehensive. Though expenses have remained stable in the first nine months of 2014, it had increased at a 5-year CAGR of 6.1% (2009-2013). Management expects overall operating expenses to decline in the subsequent quarters owing to its cost-savings initiatives. We, however, believe that the initiatives will take time to bear fruit.
Additionally, when it comes to estimate revision, the trend was mixed. Over the last 30 days, the Zacks Consensus Estimate for 2014 climbed 1.2% to $2.48 per share while it fell by a penny to $2.94 per share for 2014.
Morgan Stanley currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked investment bankers include Piper Jaffray Companies (PJC), The Goldman Sachs Group, Inc. (GS) and GAIN Capital Holdings, Inc. (GCAP). While Piper Jaffray sports a Zacks Rank #1 (Strong Buy), both Goldman Sachs and GAIN Capital hold a Zacks Rank #2 (Buy).
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