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Morgan Stanley Maintains Its ‘Buy’ Rating in 2018

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Analysts’ recommendations

Of the analysts surveyed by Reuters, ~55% have rated Morgan Stanley (MS) a “buy.” Of the remaining 45%, 11% have given the stock “strong buy” recommendations, and 30% have given it “hold” recommendations.

Analysts’ consensus price target for MS is $60, and it’s currently trading at $55. This implies an upside of ~9% in the next year.

The above graph depicts analysts’ recommendations and mean price targets for MS. A total of 30% of analysts have rated Goldman Sachs (GS) as a “buy,” 33% have rated Citigroup as (C) a “buy,” and 26% have rated JPMorgan Chase (JPM) as a “buy.” MS makes up 2.3% of the iShares U.S. Financial Services ETF (IYG).

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Objectives for 2018

Morgan Stanley’s key strategic objectives include expanding its wealth management pretax margin from 26% to 28%. It wants to position its Investment Management segment for growth and increase its efficiency ratio to 73% or more. The company believes that achieving these targets and maintaining its strong return profile will help it achieve a higher ROE (return on equity).

MS has increased its ROE target from 9%–11% to 10%–13% for the medium term. This increase includes the lower tax rates we discussed earlier in this series. The company expects Asian markets to play a key role in 2018. Apart from the tax reforms, monetary policy normalization should benefit the company’s sales and trading department.

Achievements

MS was ranked first in the resurgent underwriting market, and it maintained its top position in the equity sales and trading department for the fourth consecutive year. It was ranked number one in IPOs (initial public offering) and equity and linked offerings, and it ranked second in completed and announced mergers and acquisitions transactions.

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