While Jim Cramer doesn’t discuss Morgan Stanley (NYSE:MS) as frequently as he discusses other stocks, he does continually praise it whenever it crosses his radar. For instance, in April, Cramer pointed out that the bank would benefit from a growth in mergers and acquisitions once the Iran war was over. In the same breath, he also called the management of one firm “jokers.” You can check out his full comments and find out about the unfortunate company. In his morning appearance on September 18th, he discussed recent remarks by Bank of America and Goldman Sachs’s managements about lower fixed income and mentioned Morgan Stanley as well:
“They should be making more money. Maybe they’re all underpromising. There is one guy, again, who keeps coming through as being tougher, smarter, better. And his name is, Ted Pick, Morgan Stanley. . .”
For Morgan Stanley, with 41.5% of the revenue in Q2 coming through Wealth Management, portfolio management, retirement planning, corporate stock plan administration and other similar financial services, are key to its narrative. The firm is performing well in this area, with the second quarter revenue growing by 27% and Wealth Management revenue growing by 14% annually. Additionally, stronger markets led to the firm’s equities trading revenue surge by 69% annually to $6.3 billion. Not to mention, the wealth division added $148 billion in revenue to provide additional visibility into the firm’s future.
The booming wealth management business is also joined by the growth in equity underwriting and deals, as Cramer outlined in April. A sustained growth in market activity could add an additional layer of revenue for Morgan Stanley. Yet, where there is growth, there’s a plateau, and for Wealth Management, the plateau might be occurring when it comes to the pre-tax margin. During the second quarter, the business’s margin sat at 30.5%, which was flat sequentially. Consequently, the bank has to maintain asset growth. Additionally, with the equities revenue growth of 69% coming at a time of broader market volatility, it too could struggle if tight economic conditions harden or persist. Not to mention, alternate high yield asset flows could slow down wealth management growth.
Looking at hedge fund sentiment, it appears to have warmed in Q2. In Q2, Insider Monkey’s data shows that 86 funds had disclosed a stake in the bank compared to 80 funds in Q1. A notable addition was Viking Global‘s $339 million stake. Valuation wise, Morgan Stanley trades at a forward P/E ratio of 14.95, which is higher than Goldman Sachs’ 12.80. Short interest as a percentage of float is negligible.
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