It seems to be a wise idea to invest in the major global investment bank Morgan Stanley (MS - Free Report) now. Despite a tough operating backdrop and low rates, the company is well poised for revenue growth. Moreover, a solid balance sheet position bodes well for the future.
Further, analysts are bullish on the stock. The Zacks Consensus Estimate for the company’s earnings has been revised 26.3% and 5.6% upward, over the past 60 days, for 2020 and 2019, respectively. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s price performance seems impressive as well. Over the past year, the stock has rallied 24.2%, outperforming the industry’s rise of 7.5%.
Here’s Why the Stock is Worth Considering
Earnings strength: Morgan Stanley’s earnings have grown at a rate of 21.5%, over the past three to five years, higher than the industry average of 20.4%. This momentum is expected to continue, as evident by its projected earnings growth of 1.4% for 2020.
In addition, the company’s long-term projected earnings growth rate of 9.6% promises rewards for shareholders.
Moreover, Morgan Stanley has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 24.8%.
Revenue growth: Morgan Stanley’s organic growth remains strong. Revenues witnessed a compound annual growth rate of 4.2%, over the last five years (2015-2019). Normalized levels of trading activities, strategic buyouts, focus on wealth management operations and focus on improving corporate lending business are likely to continue boosting revenues.
Also, Morgan Stanley has been expanding inorganically. The Shareworks deal and the planned acquisition of E*Trade Financial (ETFC - Free Report) are likely to further strengthen its financials.
Further, revenues are expected to grow at the rate of 2.3% for 2020 and 1.4% for 2021.
Strong balance sheet: As of Jun 30, 2020, Morgan Stanley had total borrowings of $205.5 billion, higher than the cash and cash equivalents worth $106.3 billion. However, borrowings worth only $20.1 billion are expected to mature over the next 12 months (following the second quarter-end).
Also, the company's total debt to total capital of 70% at the end of the second quarter of 2020 remained steady in this range over the past several quarters. Thus, despite having higher debt burden, the company is expected to be able to meet near-term debt obligations, even if the economic situation worsens, owing to its sufficient liquidity position.
Sustainable capital deployments: We remain encouraged by Morgan Stanley’s capital deployment activities. In June 2020, the company cleared the annual stress test and announced plans to continue maintaining dividend at the current level of 35 cents per share. Considering last day’s closing price of $52.75, the company’s dividend yield stands at 2.63%, above the S&P 500’s 1.60%.
Further, similar to other major global financial firms like JPMorgan (JPM - Free Report) , Bank of America and Goldman Sachs (GS - Free Report) , the company has suspended share repurchases for the third quarter of 2020. Nevertheless, given its solid liquidity position and earnings strength, it is expected to be able to sustain current capital deployments.
Stock looks undervalued: Morgan Stanley looks undervalued with respect to its price-to-earnings (P/E) and price-to-book (P/B) ratios. The company’s P/E (F1) and P/B ratios of 10.48 and 1.06, respectively, are below the industry averages of 14.74 and 1.69.
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