On Apr 5, 2013, we upgraded our long-term recommendation on Morgan Stanley (MS) to Outperform from Neutral. The upgradation was based on the Federal Reserve’s approval of its 2013 capital plan.
Why the Upgrade?
In Mar 2013, Morgan Stanley received approval from the Fed to go ahead with its plan to acquire the remaining 35% stake in Morgan Stanley Wealth Management (MSWM). Also, approval of its latest capital plan reinforces the belief that the company’s capital position remains stable.
Morgan Stanley is expected to announce its first quarter 2013 results on Apr 18. The Zacks Consensus Estimate for the quarter is pegged at 58 cents per share. The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Morgan Stanley is 0.00% for the first quarter. This, along with its Zacks Rank #3 (Hold), lowers the chance of a positive earnings surprise.
Over the past 60 days, the Zacks Consensus Estimate for 2013 inched up 1.4% to $2.10 per share. Likewise, the Zacks Consensus Estimate for 2014 advanced 3.2% to $2.56 over the same period.
Additionally, Morgan Stanley has been lowering its fixed income and commodities risk-weighted assets (RWAs) since 2009. The company continues to restructure its fixed income businesses by doing away with complex structured product businesses. We anticipate reduced RWAs to free-up capital that could be utilized for enhancing shareholders’ value.
Other Stocks Worth Considering
Although we prefer Morgan Stanley, there are other global banks that are worth a look. These include JPMorgan Chase & Co. (JPM), State Street Corporation (STT) and Bank of America Corporation (BAC). The first two carry a Zacks Rank #2 (Buy), while the third stock retains a Zacks Rank #3.
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