-- Morgan Stanley's (MS) shares likely have several tailwinds lined up, including its ability to benefit from a $20 trillion intergenerational wealth transfer, UBS Securities said in a Tuesday note.
Morgan Stanley Head of Wealth Management Jed Finn said at a UBS conference earlier this year that some $20 trillion of wealth is bound to move from baby boomers to Gen X and, eventually, to millennials, according to a FactSet transcript.
"We view the upcoming intergenerational wealth transfer as a pivotal money motion event -- one in which (Morgan Stanley) is poised to capture share and outperform peers," UBS analyst Erika Najarian wrote in the note. "At the core of our upgrade thesis is the view that operating leverage will increasingly materialize as asset growth compounds and productivity per advisor improves, aided by the technology investments the company has made."
Morgan Stanley currently manages roughly $7.4 trillion in wealth-related assets, making it the largest wealth management bank with about 10% of market share, according to Najarian.
"We believe this leaves a big runway as wealth transfer accelerates," the UBS analyst said. (Morgan Stanley) has catapulted from partnering with 2.5 (million) households in 2018 to (more than 20 million) today, showcasing a potent engine for future growth."
UBS upgraded its rating on Morgan Stanley's shares to buy from neutral and raised its price target to $196 from $195.
The financial services firm could outperform in the investment banking and markets franchises too, Najarian said.
"The firm's (investment banking) stands to benefit from a strategic M&A super cycle and a re-acceleration in IPO activity," Najarian said. "Despite concerns over (artificial intelligence-driven) volatility in software stocks, (Morgan Stanley's) exposure is single digits of the pipeline."
Recent structural enhancements to its markets business could help drive durable returns for the division, according to the UBS report.
"We think the market isn't appreciating how active capital markets accelerates net new asset growth, as liquidity events naturally flow into the advisory funnel," Najarian said. "Because of this, we think the bias to margins is to the upside."
Price: $167.22, Change: $+0.67, Percent Change: +0.40%