The banking industry remains well positioned for growth, supported by benefits from a stabilizing economy and an improving interest-rate scenario. Also, the tax overhaul and expected ease in regulations are likely to bring in more benefits for banks.
Moreover, during the first quarter of 2018, investment banks, in particular, benefited from higher trading activities as volatility was back in the markets.
Thus, it seems to be a wise idea to add some banking stocks to your portfolio now. Today, we bring to you one investment banking stock, Morgan Stanley (MS - Free Report) , which, given its strengthening balance sheet and cost-reduction initiatives, is well poised for growth.
The company’s Zacks Consensus Estimate for current-year earnings has been revised 4.2% upward over the past 30 days, reflecting analysts’ optimism, regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy).
The company’s shares have gained 5.3% so far this year, underperforming the 7.4% growth recorded by the industry. Nevertheless, given the strength in fundamentals and positive estimate revisions, this price performance is expected to improve in the quarters ahead.
Here are some other factors that make Morgan Stanley an attractive investment option right now.
Earnings per Share (EPS) Strength: Morgan Stanley’s earnings have grown at the rate of 14.3% over the last three to five years, higher than the industry average of 10.5%. This momentum is expected to continue in the near term as evident by its projected EPS growth rate of 31.2% and 6.4% for 2018 and 2019, respectively.
Further, the company’s long-term projected EPS growth rate of 12.7% promises reward for shareholders.
Revenue Growth: Morgan Stanley’s organic growth remains strong. Revenues witnessed a compound annual growth rate (CAGR) of 3.4% over the last four years (2014-2017). Driven by a steady focus on wealth management operations, the top line is projected to increase 6.2% in 2018, higher than 4.6% growth recorded by the industry.
Prudent Cost Control: Morgan Stanley’s efforts to restructure and streamline its operations have helped lower expenses. As part of its cost-saving plan — Project Streamline — the company successfully achieved the cost-saving target of $1 billion by 2017. While expenses may rise as the company continues to invest in franchises, overall costs are expected to be manageable in the quarters ahead.
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.
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 11.7 and 1.4, respectively, are below the industry averages of 16.6 and 1.7.
Other Stocks to Consider
Some other stocks in the finance space worth a look are E*TRADE Financial Corporation (ETFC - Free Report) , Interactive Brokers Group, Inc. (IBKR - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) . Each of the stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
E*TRADE Financial’s Zacks Consensus Estimate for the current-year earnings moved 11.3% upward over the past 60 days. The company’s shares have surged 81% over the past 12 months.
Interactive Brokers’ current-year earnings estimates have been revised 5.2% upward over the past 60 days. Its shares have gained significantly in the past year.
Over the past 60 days, Goldman Sachs’ current-year earnings estimates have been revised 7.5% upward. Over the past 12 months, the company’s shares have rallied 8.1%.
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