Morgan Stanley Sees Limited Upside In SS&C, Initiates At Equal-weight

• Shares of SS&C Technologies Holdings, Inc. (NASDAQ: SSNC) have lost nearly 10 percent since the start of 2016.
• Brian Essex of Morgan Stanley initiated coverage of SS&C Technologies with an Equal-weight holding and $68 price target.
• The analyst cited ongoing uncertainty in the industry and highlighted two major headwinds.

SS&C Technologies is a "well-positioned" company that is on the path toward market leadership, according to Brian Essex of Morgan Stanley. However, despite the company's ongoing investments to support revenue and margin growth, the company is nevertheless operating in an unfavorable environment.

According to Essex, SS&C Technologies' stock could be "challenged" given the "current backdrop of market uncertainty" as organic revenue performance is tied to assets under administration.

Essex continued that there are two major headwinds that can limit upside potential for SS&C Technologies. First, "significant" hedge fund exposure has been a negative as "meaningful" outflows have been a "drag" on assets under administration. Second, a weak market performance has also been a "drag" on the performance of assets that remain under administration.

"We believe SS&C's stock will continue to realize limited upside to current multiples with investors unlikely to pay up for exposure to these volatile and uncertain end markets, in spite of recent improvement in market stability," the analyst argued.

Essex also suggested that SS&C's "healthy" track record of boosting leverage to partake in M&A activity could become a negative overhang. The analyst expanded that higher average debt levels over time will affect the risk profile and the multiple investors will value the stock at.

Bottom line, the current level of leverage and risk offsets any improvements in SS&C's market position until the end market will see improving conditions.