We recently initiated coverage on Morgan Stanley (MS) with a Neutral recommendation. The company’s third-quarter earnings of 38 cents per share was substantially ahead of the Zacks Consensus Estimate of 30 cents per share.
Net revenues for the quarter were $8.7 billion, up 60% sequentially but down 52% year over year. Results were helped by robust underwriting and wealth management revenues that were partially offset by losses in commercial real estate. Though a low level of activity was witnessed in advisory and housing divisions, strong gains were posted in fixed income sales and trading, commodities, prime brokerage and wealth management business.
Although the investment banks are facing industry headwinds on the global front, Morgan Stanley has significant competitive leverage, given a relatively consistent growth momentum in its core Institutional Securities’ franchise from a renewed focus on right-sizing the company’s risk profile and from select investments in the areas of equity derivatives, proprietary trading, mortgages and principal investments. Moreover, a high return on earnings, ample liquidity and a healthy balance sheet continue to be growth drivers in the near to medium term.
However, as the global economic environment continues to be more challenging and earnings visibility remains low, cyclical pressures in the weak commercial real estate sector increase concerns over the near term and weigh on Morgan Stanley’s prospects for future returns.
Morgan Stanley is an industry leader with a strong balance sheet and vast market share. With client assets of $1.5 trillion and total assets per global representative increasing to $84 million in the Global Wealth Management segment at the end of the third quarter of 2009, the company ranks first in global announced-and-completed mergers and acquisitions (M&A) as well as in global IPOs.
Though the current global economic scenario is a cause of concern for the company’s critical sustainability factor, in the long term Morgan Stanley has the potential to realize the full benefits of its strategic and cost-cutting initiatives by disciplined risk-taking, the addition of new talent, the continued integration of the Morgan Stanley Smith Barney joint venture and the execution of the Mitsubishi UFJ Financial Group Inc. (MTU) alliance.
Morgan Stanley competes with commercial banks, insurance companies, sponsors of mutual funds, hedge funds and other companies that offer financial services. With increased M&A activity in the financial space, larger companies with a wider reach and more capabilities intensify its competitive space.
On Friday, the shares of Morgan Stanley closed at $32.25, down 2%, on the New York Stock Exchange.
Read the full analyst report on “MS”
Read the full analyst report on “MTU”
Zacks Investment Research
