On Jun 6, 2014, we issued an updated research report on Morgan Stanley (MS). The company’s better-than-expected results and restructuring initiatives will support its financials in the near future. However, sluggish economic recovery and mounting expenses make us apprehensive.
Morgan Stanley reported first-quarter 2014 results on Apr 17. Earnings of 68 cents per share surpassed the Zacks Consensus Estimate by 13.3% backed by top-line growth which was partially offset by a marginal rise in expenses.
Following the earnings release, the Zacks Consensus Estimate has been revised upward over the last 60 days. For 2014, the Zacks Consensus Estimate increased 2.9% to $2.49 per share, while for 2015 it inched up 0.7% to $2.98 per share.
On the flip side, the continuous rise in operating expenses remains a major cause of concern for Morgan Stanley. Though management anticipates a decline in the overall operating expenses going forward owing to the expense-savings initiatives undertaken, we believe that the actions will take time to bear fruit.
Moreover, Morgan Stanley’s profitability is expected to be affected by the financial reform law due to higher costs and fee restrictions. Also, stricter capital requirement will likely reduce the company’s flexibility with respect to its business investments, to some extent.
Presently, Morgan Stanley has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked finance companies include CVB Financial Corp. (CVBF), Western Alliance Bancorporation (WAL) and BofI Holding, Inc. (BOFI). All these stocks sport a Zacks Rank #1 (Strong Buy).