Armed with cost-reduction initiatives and a strengthening balance sheet, Morgan Stanley (MS - Free Report) appears a promising pick right now. Moreover, it is well positioned to capitalize on the rising rate environment.
A positive trend in estimate revisions reflects optimism over the company’s earnings growth prospects. The Zacks Consensus Estimate for Morgan Stanley’s current-year earnings has moved up marginally over the last 60 days. As a result, the stock currently carries a Zacks Rank #2 (Buy).
The stock has rallied 23.9% over the past 12 months, outperforming the industry’s gain of 15.8%.
Here’s Why the Stock has More Upside Potential
Earnings Strength: Morgan Stanley recorded an earnings growth rate of 14.6% over the last three to five years compared with 8.7% for the industry. The earnings growth rate for the current and the next year is anticipated to be 22.4% and 12.5%, respectively.
Further, over the long term, Morgan Stanley’s earnings are anticipated to grow at the rate of 11.9%.
Revenue Growth: The company’s organic growth remains strong. Revenues witnessed a compound annual growth rate of 7.2% over the last five years (2012-2016). Driven by steady focus on wealth management operations, the top line is expected to increase 8.5% in 2017 against no growth for the industry.
Prudent Cost Control: Morgan Stanley launched a company-wide cost savings plan — Project Streamline — to discover and implement considerable infrastructure expense reductions by 2017. The company is on track to achieve its expense-savings target of $1 billion by the end of this year.
Impressive Capital Deployment: Morgan Stanley’s capital deployment plan is commendable. Its 2017 capital plan included a 25% dividend hike and $5 billion share repurchase authorization. Given its solid liquidity position and earnings strength, the company is likely to be able to sustain this level of capital deployments.
Favorable ROE: Morgan Stanley’s return on equity (ROE) supports its growth potential. Its ROE of 10.07% compares favorably with the industry’s 9.12% average, implying that it is efficient in using its shareholders’ funds.
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 trailing 12-month P/E and P/B ratios of 14.86 and 1.36, respectively, are below the industry averages of 20.98 and 1.69.
Other Stocks to Consider
Some other stocks in the finance space worth a look are Interactive Brokers Group, Inc. , Raymond James Financial, Inc. (RJF - Free Report) and Two River Bancorp . All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Interactive Brokers’ current-year earnings estimates have been revised 3.2% upward over the past 60 days. The company’s shares have surged 64.4% in six months’ time.
Raymond James’ Zacks Consensus Estimate for current fiscal year earnings moved 1.4% upward over the past 60 days. The company’s shares have gained 11.6% over the past six months.
Two River Bancorp’s current-year earnings estimates have been revised 2.1% upward, over the past 60 days. Over the past six months, the company’s shares have rallied 8.7%.
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