For Immediate Release
Chicago, IL – September 9, 2010 – Zacks.com Analyst Blog features: Cisco Systems (CSCO), Duke Energy Corp (DUK), NextEra Energy Inc. (NEE), Morgan Stanley (MS), and Bank of America Corporation (BAC).
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Here are highlights from Wednesday’s Analyst Blog:
Cisco Buys Smart Grid Firm
Cisco Systems (CSCO) recently announced that it agreed to acquire privately held Arch Rock Corp., which specializes in wireless network equipment for smart grids. Cisco did not say how much it was paying for the company.
The networking giant said the acquisition would help it beef up its IP-based, end-to-end smart grid offerings, adding that Arch Rock complemented its recently announced strategic alliance with smart meter provider Itron for the development of solutions that enhance smart-metering technology.
Arch Rock’s technology helps utilities to connect smart meters and other devices over a scalable, secure, multi-way wireless mesh network. Its sensors help monitor heat and other environmental conditions for effective energy use. San Francisco-based Arch Rock will become a part of Cisco’s smart grid business unit.
The aging grid system has necessitated the need for controlling energy use and improving overall energy efficiency. Pike Research estimates the U.S. smart grid market to grow to $200 billion in the next five years. However, it remains to be seen how Cisco manages to boost its smart grid strategy by tapping a relatively small North American market that only has about 3100 utilities.
Cisco has grown its operations through acquisitions and the latest deal – the second in as many days – appears to be an attempt on the part of Cisco to offer not only end-to-end smart-grid offerings but also enter the turf of utility companies.
Cisco expects to complete the acquisition in the second half of this calendar year. The company said the acquisition further positions it as a strategic partner to utilities working to better manage power supply and demand, improve the security and reliability of energy delivery, and optimize operational costs. The company, which started moving to the smart-grid space in 2009, has been in talks with utilities such as Duke Energy Corp (DUK) and NextEra Energy Inc. (NEE) for providing end-to-end smart grid solutions.
We have a Zacks #3 Rank (short-term Hold recommendation) on Cisco shares.
Morgan Stanley Shuffles Executives
Yesterday, Morgan Stanley (MS) announced that Ms. Sophia Drossos has been appointed as a senior investor of the company’s Investment Management unit.
Though, the news was announced through Morgan Stanley’s internal memo yesterday, the appointment had been made on August 16. The memo also stated that Mr. Edward Riguardi has become a member of Investment Management unit’s research team.
Ms. Drossos, who joined Morgan Stanley in July 2003, was earlier a co-head of the company’s foreign exchange strategy. She had earlier worked for the Federal Reserve Bank of New York’s markets group, the U.S. Department of State and the Federal Reserve board of governors. Mr. Riguardi had joined Morgan Stanley in August 2008 as an analyst.
In December 2009, Mr. Gregory Fleming had been appointed as the president of MSIM unit. He was the president and chief operating officer at Merrill Lynch & Co. before it was acquired by Bank of America Corporation (BAC) in early 2009.
These executive changes are a part of Morgan Stanley’s initiative to enhance the performance of its Investment Management unit. Since the financial crisis, the unit continues to suffer from significant losses.
Earnings Recap
Morgan Stanley’s second quarter 2010 earnings came in at 80 cents per share, substantially ahead of the Zacks Consensus Estimate of 47 cents and the loss of $1.36 in the year-ago quarter.
Results in the quarter were aided by robust top-line growth, resulting from higher trading revenues, commissions, asset management fees and improved interest income. Net revenues for the reported quarter were positively impacted by gains made in Morgan Stanley’s debt-related credit spreads. However, higher compensation and non-compensation expenses were the downside.
Estimate Revision Trends
Over the last 30 days, 3 of the 18 analysts covering Morgan Stanley have downgraded the estimate for the third quarter of 2010. Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of 56 cents per share, an increase of 46.64% from the year-ago quarter.
For the full year 2010, 2 out of 18 analysts have reduced their estimates, while only 1 upward revision was witnessed. The Zacks Consensus Estimate for full year 2010 is operating earnings of $2.99, up 421.5% from the prior year.
Our Take
Morgan Stanley is facing major headwinds to maintain its competitive edge and regain its industry leading position after the financial crisis. However, we believe that the company has the potential to realize the full benefits of its strategic and cost-cutting initiatives. Moreover, inorganic growth initiatives with a healthy balance sheet continue to be significant growth drivers.
Morgan Stanley currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.
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