Morgan Stanley (MS) is one of the leading forces around in investment banking and other financial services. Its latest earnings report shows off the true extent of its operations, and what it can really do in the field. The company gained 2.3% in premarket trading on Thursday, and the gains carried on into Thursday’s trading session.
Its sheer level of diversification in operations makes it an attractive prospect. I’m bullish on this investment leader despite problems both macroeconomic and localized in nature facing it, thanks mainly to that sheer diversification.
The last 12 months for Morgan Stanley have been up and down, but overall, remain slightly up. From April 2021 to February 2022, Morgan Stanley has been on an upward overall cant.
It challenged $110 briefly. February 2022 proved a disaster for the company. A turnaround followed in March, though it was ultimately wiped out. Now, the company’s stock is just under $10 higher than it was this time last year.
The latest news gave investors more reason to support the company. The company’s earnings report featured $2.02 per share in earnings against Refinitiv projections of $1.68. Meanwhile, revenue eked out a win as well, coming in at $14.8 billion against projections of $14.2 billion.
A combination of higher merger and acquisition activity, volatile markets, and better revenue from the equity and wealth management operations helped push Morgan Stanley forward.
Wall Street’s Take
Turning to Wall Street, Morgan Stanley has a Moderate Buy consensus rating. That’s based on five Buys and six Holds assigned in the past three months. The average Morgan Stanley price target of $104 implies 21.9% upside potential.
Analyst price targets range from a low of $94 per share to a high of $118 per share.
Solid Dividend but Plenty of Potential Troubles
Morgan Stanley has a good news-bad news setup to it.
The bad news is that insiders and hedge funds alike are getting out of Morgan Stanley.
The TipRanks 13-F Tracker reveals that hedge fund involvement in Morgan Stanley has been declining since December 2020. The decline’s pace is a bit more gradual, especially in the last three quarters, but it’s still present.
There was always a certain volatility in hedge funds’ connection to Morgan Stanley. Throughout 2020, it was literally up and down; up in both June and December, down in March and September. 2021, however, featured a clear downward progression the entire time.
Perhaps worse is the level of insider trading at Morgan Stanley. Selling has been on the rise, as insiders sold $17 million in shares in the last three months. There has been plenty of buying interest as well, but selling is outpacing buying somewhat.
Morgan Stanley’s dividend history, however, was a clear winner here. The dividend has not only been paid regularly since April 2019, it’s also increased regularly as well.
The company doubled its dividend from $0.35 to $0.70 between April and July 2021. Income investors were no doubt happy to see this return to form, as the size of the increase likely made up for the lack of increase previously.
A Better Position than Some
Morgan Stanley is actually in a pretty solid position right now. It saw the same kind of slowdown Goldman Sachs did, for the same reasons. However, it also saw less of a slowdown overall.
Merger-related advisory fees are down all over, but Morgan Stanley had several other facets of the business that could emerge to take up some of the slack.
Yes, all isn’t well in Morgan Stanley. Hedge funds and insider trading are turning against the company. There’s been a big drop in initial public offering activity in the first quarter of 2022. IPO volume is down 37% based on a study at EY, and proceed are down just over half.
Worse, a former Morgan Stanley broker just got hit with a fine over sales limits on fixed income products.
Though that doesn’t impact the company much, it might make some formerly interested clients look elsewhere.
However, despite these points, there are also clear benefits. Morgan Stanley has ably preserved its dividend and expanded accordingly. The company is selling at prices close to those seen last year, and is well off its highs. It’s even trading below its lowest price targets, which is definitely a plus in terms of upside potential.
Concluding Views
Yes, most investment houses will likely have some troubles to come. The ongoing Russia-Ukraine war is a major destabilizing factor. Roaring inflation and spiking commodities prices will also unsettle markets. So too will the supply chain issues, and the seemingly endless threat that is COVID-19.
However, Morgan Stanley is offering a solid proposition at a good price, especially for the time being. There’s a lot more potential upside to Morgan Stanley than others can generate right now, and that makes Morgan Stanley unusually attractive.
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