Wells Fargo Turns Bullish On Morgan Stanley

Morgan Stanley MS has successfully diversified its business mix and is successfully gaining market share in some areas and retaining it in others, Wells Fargo said in an upgrade. 

The Analyst

Analyst Mike Mayo upgraded Morgan Stanley from Market Perform to Outperform with a price target lifted from $56 to $60.

The Thesis

Morgan Stanley has a fine-tuned business mix that other banks have not replicated, Mayo said in the Wednesday upgrade note. (See his track record here.)

“Long-term, MS has evolved its business mix more than any other large bank with an increase in wealth and asset management to half the firm from one-third earlier this decade,” the analyst said. 

“Medium-term, we expect EPS to exceed consensus by 2020 ($5.85 vs. $5.61) even assuming only 5-percent total revenue growth over two years."

Morgan Stanley has been gaining share from European banks while still maintaining leading share in other areas such as advisory, underwriting and equities, Mayo said. 

“In wealth management, it has produced more revenues with less branches and headcount given scale benefits that have been so elusive for the prior two decades,” he said. 

Morgan Stanley also may have some built-in earnings levers in the next two quarters, such as back-end loaded performance fees in Q4 and elimination of retention bonuses for wealth advisors in the first quarter of 2019, the analyst said. 

“The CEO last week committed to MS showing positive operating leverage ahead even if revenue growth is only slightly positive.”

Price Action

Morgan Stanley shares were down 0.83 percent at $44.15 at the time of publication Wednesday.

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