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Argus Reflects On Morgan Stanley's New Activist Stake

Argus Reflects On Morgan Stanley's New Activist Stake - Morgan Stanley NYSE:MS

Activist investor ValueAct Holdings has taken a 2 percent stake in Morgan Stanley MS 0.49%, making ValueAct Holdings Morgan Stanley’s sixth-largest shareholder based on analysis from Vickers Stock Research.

Argus’ Stephen Biggar reiterated a Buy rating on the company, while raising the price target from $32 to $36.

Activist Stake

“In announcing its investment, ValueAct echoed our view that MS has made significant progress in lowering its risk profile, strengthening its capital buffers, and reducing earnings volatility,” Biggar mentioned.

The analyst believes that the recent appreciation in Morgan Stanley’s share price reflects investor expectations of lower volatility in earnings going forward, which is likely to drive higher valuation multiples.

Wealth Management

Biggar pointed out that the wealth management segment, which has a more stable profit and revenue profile, now accounts for over 50 percent of the company’s revenues, while risk-weighted assets have continued to decline.

The performance of the wealth management segment has been supported by Morgan Stanley’s focus on high and ultra-high net worth clients, which are witnessing the most rapid growth.

In addition, the company continues to target 9–11 percent ROE, although “lackluster” revenue kept it from achieving this goal in H2:16.

“In 2017, management expects to generate $1 billion in cost savings through support service efficiencies, headcount reductions, and new compensation targets,” Biggar noted, while adding that the company “has made good progress on capital levels, allowing for greater shareholder returns.”

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DateFirmActionFromTo
Aug 2016Argus ResearchMaintainsBuy
Jul 2016BerenbergInitiates Coverage onHold
Apr 2016Keefe Bruyette & WoodsMaintainsMarket Perform

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