This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Analysts Will Date Morgan Stanley, But Bring Goldman Home to Mother

NEW YORK ( TheStreet) -- Morgan Stanley (MS - Get Report) got some long stares from Wall Street analysts following its fourth-quarter earnings, but it's still Goldman Sachs that gets the love.

Morgan Stanley execs laid out a strategic plan to improve returns for shareholders Friday, but analysts remain skeptical of the investment bank's ability to deliver in the near term.

The company, which reported solid earnings for the fourth quarter , said it could deliver a return on tangible equity in excess of 10%, through a combination of a higher contribution from its wealth management business, restructuring of fixed income business, lower expenses and returning more capital to investors.

The investment bank will purchase the remaining stake in the Morgan Stanley Smith Barney venture ahead of schedule and reduce expenses by $1.6 billion over two years in a flat-revenue environment, lower fixed income risk-weighted assets from $280 billion end of 2012 to $200 billion in 2016. CEO James Gorman also said the company will return excess capital "as soon as possible", once its completes the purchase of the remaining MSSB stake.

The detailed plan was well-received by Wall Street analysts, many of whom raised their estimates and target price for the stock.

Still, most analysts believe that the company faces challenges in achieving its target.

"While surely an improvement from the mid-single digit recent performance, MS' targets only meets its cost of capital, suggesting valuation near tangible book value in more than a year," Wells Fargo Securities analyst Matt Burnell wrote in a report. He added that lackluster performance of the institutional securities business in recent quarters suggests "revenue improvement is needed as much as capital efficiency to improve returns in the business."

Burnell believes "meaningful capital return" is at least 2 years away for Morgan Stanley shareholders.

Moreover, Goldman Sachs is a better bet according to the analyst."We note that rival GS currently earns its cost of capital and offers meaningfully higher capital returns and yields with less volatility."

Barclays Capital analyst Roger Freeman expects Morgan Stanley to deliver return on equity of 6.7% in 2013 and 7.6% in 2014 and believes the stock will still be valued at a discount to tangible book in the near term, as its ROE is still below its cost of capital. Delivering returns on equity above 10% would be highly dependent on profitable market conditions, he noted.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GS $159.43 -0.40%
MS $26.16 -0.46%
AAPL $93.09 -0.57%
FB $117.76 -0.25%
GOOG $700.54 0.70%


Chart of I:DJI
DOW 17,637.36 -13.90 -0.08%
S&P 500 2,049.02 -2.10 -0.10%
NASDAQ 4,717.8970 -7.7420 -0.16%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs