Morgan Stanley’s largest division is its investment banking segment -- almost half of the revenues, and more than half of the profits -- and it is one of the most respected banking companies in the industry. This division continued to do well during Purcell’s tenure, but a number of people left in a restructuring in 2005. Under new management, some bankers seem to be returning, and this should help create even more growth for the company in the coming years. The firm’s other sectors including retail brokerage, asset management, and the Discover credit card business were generally seen as mismanaged earlier in the decade. There is plenty of room to improve revenues and margins in these areas, and thus to contribute to the company’s overall health.
There are some reasons to be a little worried – the company just lost a court case involving the sale of Coleman to Sunbeam, which resulted in a $1.4 billion payment to Ronald Perelman. There will be appeals, of course, and the payment may end up being smaller, but this could put a dent in the company’s margins. Discover is not a particularly large or successful division; it doesn’t seem to have great prospects for the future, and growing rates could really damage it.
Despite these concerns, I think the new management is going to keep this company moving forward. Ever since a rough second quarter 2005, results have been improving by 50% over the previous year, and they’ve been growing from quarter to quarter as well. The stock has been rising pretty steadily for the past year, and it seems likely to continue.
Type of stock: One of the largest, most respected banks in the world, which is back under strong management and ready to grow.
Price target: The stock is currently trading pretty close to the 52-week high of $69. While I think there will be some growth to come, I wouldn’t buy it until you see a drop into the low $60s.