On Mar 11, 2013, we reaffirmed our Neutral recommendation on
) 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
EVERCORE PARTNR (EVR): Free Stock Analysis
KNIGHT CAP GP (KCG): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
PIPER JAFFRAY (PJC): Free Stock Analysis
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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
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.
Knight Capital Group, Inc
Piper Jaffray Companies
). All these stocks carry a Zacks Rank #1 (Strong Buy).