Back to top

Image: Bigstock

Buyouts, Restructuring Aid Morgan Stanley (MS) Amid High Costs

Read MoreHide Full Article

Morgan Stanley (MS - Free Report) has been continuously making efforts to focus more on businesses that are less dependent on the capital markets. Along with this, its inorganic growth efforts will likely keep supporting financials.

However, persistently increasing expenses might hurt the company’s bottom line in the near term. Analysts are not that optimistic regarding the company’s earnings growth potential. The Zacks Consensus Estimate for Morgan Stanley’s 2022 earnings has moved 1.8% lower over the past 30 days. Thus, the company currently carries a Zacks Rank #3 (Hold).

Over the past year, shares of MS have rallied 9.3% against the industry’s decline of 4.3%.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

Morgan Stanley’s restructuring efforts, which aims at increasing reliance on reliable revenue sources, seem impressive. The company has been focusing more on segments like Wealth Management (“WM”) and Investment Management (“IM”), which are less dependent on the capital markets. The buyouts of Eaton Vance, E*Trade Financial and Shareworks are steps in this direction.

Driven by the above-mentioned initiatives, the WM segment’s total client assets witnessed a four-year (2018-2021) compound annual growth rate (CAGR) of 28.9%. In contrast, the IM segment’s total assets saw a CAGR of 50.1% over the same period.

MS has a robust balance sheet. As of Dec 31, 2021, the company had total borrowings of $233.1 billion, with only $20 billion expected to mature within a year. The company’s liquidity resources were $356 billion as of the same date. Owing to its sufficient liquidity position, Morgan Stanley is expected to continue to meet near-term debt obligations, even if the economic situation worsens.

Given its earnings strength, it is expected to continue to enhance shareholder value through efficient capital deployments.

However, Morgan Stanley has been witnessing a continued rise in expenses over the past few years. In the six-year period (ended 2021), total non-interest expenses saw a CAGR of 9.2%. Given the company’s continued investments in franchise and inorganic growth efforts, overall expenses are anticipated to remain elevated in the near term, thereby hurting profitability to an extent.

While MS has been trying to focus less on capital markets driven revenue sources, the performance of its Institutional Securities (“IS”) segment, constituting mainly of the trading and investment banking (“IB”) businesses, depends on the performance of the capital markets. In 2020 and the first few months of 2021, both businesses recorded impressive growth, supported by the coronavirus outbreak-induced market volatility and higher client activities.

However, as markets began to normalize from second-quarter 2021, the performance of both did not remain that impressive. The future performance of the IS segment remains uncertain as it depends on market developments and client volumes.

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are East West Bancorp (EWBC - Free Report) and Zions Bancorporation (ZION - Free Report) . At present, EWBC and ZION sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past six months, shares of East West Bancorp have gained 18.1%, while that of Zions have rallied 23.7%.

Over the past 60 days, the Zacks Consensus Estimate for East West Bancorp’s current-year earnings has been revised 6.6% upward, while the same for Zions has moved 6.9% north.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Morgan Stanley (MS) - free report >>

Zions Bancorporation, N.A. (ZION) - free report >>

East West Bancorp, Inc. (EWBC) - free report >>

Published in