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Morgan Stanley's (MS) Inorganic Expansion Aids Amid High Costs
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Morgan Stanley (MS - Free Report) has been continuously making efforts to focus more on businesses that are less volatile revenue sources. Along with this, its inorganic growth efforts will likely keep supporting financials. However, elevated expenses and the uncertain performance of capital markets remain concerns.
Morgan Stanley’s strategic buyouts, which aim to increase dependence on reliable revenue sources, are commendable. Driven by these efforts, its Wealth Management ("WM") and Investment Management ("IM") segments’ aggregate contribution to net revenues jumped to almost 55% in 2022 from 26% in 2010. However, the difficult operating backdrop in the near term is expected to hamper growth in WM and IM segments (as witnessed in the first quarter of 2023). We project both segments' contribution (in aggregate) to the top line to be more than 57% in 2023.
Morgan Stanley has a solid balance sheet. As of Mar 31, 2023, it had long-term debt of $245.6 billion, with approximately $20.4 billion expected to mature within a year. The company’s average liquidity resources were $321.2 billion as of the same date. Owing to its sufficient liquidity position, MS is expected to continue to meet near-term debt obligations, even if the economic situation worsens.
However, Morgan Stanley has witnessed a continuous rise in expenses. Though expenses declined in 2022, it witnessed a three-year (2019-2022) CAGR of 9.3%. The uptrend continued in the first quarter of 2023. Going forward, expenses are expected to remain elevated, given the steady increase in revenues (leading to higher compensation costs) and inflationary pressure, as well as the company’s investments in franchise and inorganic growth efforts. Our estimates for total non-interest expenses suggest an increase of 1% this year.
The performance of Morgan Stanley's Institutional Securities ("IS") segment, constituting the trading and investment banking businesses, depends on the performance of the capital markets. The future performance of the segment remains uncertain as the current global economic and geopolitical environment continues to be influenced by elevated inflation, higher rates, worsening macroeconomic outlook and volatility across the global financial markets.
Though the company sees signs of growing M&A and underwriting pipelines, the financial impact is expected in the second half of 2023 and in 2024. Hence, we expect the IS segment's revenues to decline 4.6% in 2023.
Further, analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for MS' 2023 and 2024 earnings has been revised marginally downward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of MS have gained 4.1% against the industry's 7.2% decline.
Image Source: Zacks Investment Research
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are HomeTrust Banshares, Inc. (HTBI - Free Report) and Pathward Financial, Inc. (CASH - Free Report) .
The Zacks Consensus Estimate for HomeTrust Banshares’ current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have gained 16.3% in the past month. Currently, HTBI sports a Zacks Rank #1 (Strong Buy).
Pathward Financial currently carries a Zacks Rank #2 (Buy). The consensus mark for the company's 2023 earnings has been revised 1.8% upward over the past 60 days. In the past six months, CASH shares have rallied 16.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Morgan Stanley's (MS) Inorganic Expansion Aids Amid High Costs
Morgan Stanley (MS - Free Report) has been continuously making efforts to focus more on businesses that are less volatile revenue sources. Along with this, its inorganic growth efforts will likely keep supporting financials. However, elevated expenses and the uncertain performance of capital markets remain concerns.
Morgan Stanley’s strategic buyouts, which aim to increase dependence on reliable revenue sources, are commendable. Driven by these efforts, its Wealth Management ("WM") and Investment Management ("IM") segments’ aggregate contribution to net revenues jumped to almost 55% in 2022 from 26% in 2010. However, the difficult operating backdrop in the near term is expected to hamper growth in WM and IM segments (as witnessed in the first quarter of 2023). We project both segments' contribution (in aggregate) to the top line to be more than 57% in 2023.
Morgan Stanley has a solid balance sheet. As of Mar 31, 2023, it had long-term debt of $245.6 billion, with approximately $20.4 billion expected to mature within a year. The company’s average liquidity resources were $321.2 billion as of the same date. Owing to its sufficient liquidity position, MS is expected to continue to meet near-term debt obligations, even if the economic situation worsens.
However, Morgan Stanley has witnessed a continuous rise in expenses. Though expenses declined in 2022, it witnessed a three-year (2019-2022) CAGR of 9.3%. The uptrend continued in the first quarter of 2023. Going forward, expenses are expected to remain elevated, given the steady increase in revenues (leading to higher compensation costs) and inflationary pressure, as well as the company’s investments in franchise and inorganic growth efforts. Our estimates for total non-interest expenses suggest an increase of 1% this year.
The performance of Morgan Stanley's Institutional Securities ("IS") segment, constituting the trading and investment banking businesses, depends on the performance of the capital markets. The future performance of the segment remains uncertain as the current global economic and geopolitical environment continues to be influenced by elevated inflation, higher rates, worsening macroeconomic outlook and volatility across the global financial markets.
Though the company sees signs of growing M&A and underwriting pipelines, the financial impact is expected in the second half of 2023 and in 2024. Hence, we expect the IS segment's revenues to decline 4.6% in 2023.
Further, analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for MS' 2023 and 2024 earnings has been revised marginally downward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
In the past six months, shares of MS have gained 4.1% against the industry's 7.2% decline.
Image Source: Zacks Investment Research
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are HomeTrust Banshares, Inc. (HTBI - Free Report) and Pathward Financial, Inc. (CASH - Free Report) .
The Zacks Consensus Estimate for HomeTrust Banshares’ current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have gained 16.3% in the past month. Currently, HTBI sports a Zacks Rank #1 (Strong Buy).
Pathward Financial currently carries a Zacks Rank #2 (Buy). The consensus mark for the company's 2023 earnings has been revised 1.8% upward over the past 60 days. In the past six months, CASH shares have rallied 16.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.