We're Raising These Price Targets as Investment Banking Activity Warms Up
M&A activity appears to be rebounding sooner than many thought, As we adjust our expectations, market technical indicators suggest this could be our next move for these holdings.
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Wednesday afternoon, we discussed here what could be the re-opening of the IPO market following the successful pricing of eToro’s (ETOR) offering, noting potential implications for a pick-up in investment banking activity. To that, we can add what appears to be a rebound in M&A activity, another driver of investment banking activity.
Dick’s Sporting Goods DKS announced earlier this week it is acquiring Foot Locker FL and today the merger agreement between Charter Communications CHTR announced a merger agremeement with privately held Cox Communications. There are also firming reports that DigitalBridge DBRG is poised to be acquired by 26North Partners, and Acuren (TIC) and NV5 Global NVEE are merging in a $1.7 billion cash and stock deal.
Even though some uncertainty remains with tariffs and trade deals, with the market dialing back from what can be called maximum uncertainty over the last week and stock prices rebounding, M&A activity appears to be rebounding sooner than many expected. That is leading shares of Pro Portfolio holdings Morgan Stanley MS and Bank of America BAC higher, as it should, given their position on the global M&A league tables. The corresponding league tables for IPO activity also bode well for those two Pro Portfolio positions.
Great(er) Expectations
In response to what we’ve seen so far, we are adjusting our expectations for investment banking activity in the current quarter higher. That translates to our lifting our MS target to $140 from $120, and nudging our BAC target to $50 from $45. The larger target increase for Morgan Stanley reflects the greater profit and earnings leverage that investment banking has on its business compared to Bank of America.
Based on what we see in the coming days and weeks on both the IPO and M&A front, we’ll revisit these new targets as needed. Up next, we will want to watch the pending IPO of digital health company Hinge Health (HNGE), which launched its deal roadshow Tuesday and targets issuing 13.7 million shares between $28-$32. We will also want to gauge the market’s reaction to MNTN’s (MNTN) IPO that targets 11.7 million shares priced between $14-$16. Both of these transactions are expected to be priced next week. To head off any potential member questions, Morgan Stanley is a lead underwriter for the MNTN, HNGE, and CoreWeave CRWV offerings.
That’s the good news. The not-so-good news is that with relative strength index levels at 73.60 and 69.68 for MS and BAC shares, respectively, we’re reiterating our Two ratings. We’d also share that following the 40% move in MS shares since their early April bottom and the analogous 32% one for BAC shares, we are more likely to lock in a slice of those gains than adding to either of those positions at current levels. Now to see how those HNGE and MNTN offerings get priced next week.
At the time of publication, TheStreet Pro Portfolio was long MS and BAC.
