This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Morgan Stanley's MSSB Acquisition A 'Game Changer': UBS

Stocks in this article: gs MS

Morgan Stanley (MS) pulls ahead of Goldman Sachs Group Inc (GS) in USB AG (UBS)'s recent research on US brokers and asset managers by analysts Brennan Hawken and David Eads.

"Morgan Stanley (MS) shares have outperformed Goldman Sachs Group Inc (GS) by 8.8% since early September MS is up 14.2% and GS is up 5.4% and we expect this outperformance to continue. Specifically, we see several factors driving strong relative performance for MS, including: 1 a better positioned securities business in the current environment, 2 less downside from a harsh Volcker rule, 3 a business mix that tends to garner a higher multiple, and 4 consensus estimates that seem too low to us," say the UBS analysts.

Morgan stanley performance

What's working for Morgan Stanley

According to UBS, Morgan Stanley's realignment of business priorities in favor of wealth management and a stronger equities business should yield the following advantages:

  • These businesses are comparatively less capital intensive
  • They offer scope for improving the mix in favor of more profitable businesses
  • Stable earnings and potential for high deposit funding
  • Favored by regulators for the last-mentioned reason above.

Additionally, Morgan Stanley (MS) has scored a coup by acquiring MSSB, and this is a 'game-changer' say USB AG (UBS), leading to a re-rating of the stock.

2-better-earnings Morgan stanley

Goldman Sachs relying on expense control

On the other hand Goldman Sachs Group Inc (GS) has reported profitability that relied more on expense reduction compared to revenue generation. "We believe it is unlikely that Goldman Sachs will be able to drive meaningfully higher returns without an improvement in the revenue outlook. Further, as long as double-digit returns are delivered through expense control, we expect the multiple on Goldman Sachs shares should remain constrained," say the analysts.

Market under-estimating Morgan Stanley

UBS AG (UBS)'s earnings projections for Morgan Stanley (MS), which recently incorporated interest income arising from the wealth management business, indicate that its earnings growth is likely to be far superior to that of Goldman Sachs Group Inc (GS).

According to UBS, the consensus earnings estimates for Morgan Stanley are unduly lower than warranted: "Our 2014 and 2015 estimates are meaningfully above consensus, and we see considerable upside to our numbers due to the potential for strong loan growth and upside from rising rates."

In addition, the market is not factoring the proper size of the buyback that regulators would allow Morgan Stanley (MS) - in UBS AG UBS's view this could be as high as $3B.

Morgan Stanley's IB business more sheltered from regulators

UBS analysts are of the opinion that the shrinkage of FICC business at Morgan Stanley (MS), which in any case was a drag on IB earnings, would also relieve regulatory pressure/scrutiny. "We have been encouraged by the steady shrinking of their FICC RWAs. Therefore, even if MS is not able to generate returns above its cost of capital in FICC, the declining prominence of this business should improve the firm's return profile in the IB."

On the other hand, the company's huge scale in Equities would shield it from increasing competition in this area, as well as allow it to generate excellent returns on the regulatory capital invested in this business.

3-better-am-earnings Morgan stanley


4-ratings Morgan stanley

UBS AG (UBS) have a price target of $37 on Morgan Stanley (MS) on the basis of 11X their 2015 EPS in 12 months.

-By Saul Griffith


Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs