• Article 75 of the Italian constitution forbids referendums dealing with international treaties.
• That means that the country's constitution would need to be changed before a referendum could be held on EU and euro membership.
• A two-thirds majority in the lower house of Italy's parliament is needed to change the constitution.
• Such a majority looks highly unlikely right now, even if the Northern League and Five Star Movement increase their vote share in any future election.

A little-known article in the Italian constitution makes it virtually impossible for Italy to leave the euro or the European Union in the near future, even if the country ends up being ruled by a eurosceptic coalition in the coming months.

Article 75 of the Italian constitution could play a key role in defusing the developing crisis in Italian politics, a crisis which many fear could culminate in Italy pulling out of the euro.

Article 75 was first brought to Business Insider's attention by a team of analysts from Morgan Stanley in November 2016 when Italy was about to vote on electoral reforms put forward by former Prime Minister Matteo Renzi. The article enshrines the fact that Italy cannot hold a referendum on anything related to international treaties.

Here is the pertinent passage of the constitution (emphasis ours):

"A general referendum may be held to repeal, in whole or in part, a law or a measure having the force of law, when so requested by five hundred thousand voters or five Regional Councils. No referendum may be held on a law regulating taxes, the budget, amnesty or pardon, or a law ratifying an international treaty."

Membership of the European Union and the euro are both dictated by international treaties and, as a result, the constitution would have to be changed if Italy wants to give its people a say on leaving either. Changing the constitution is no easy task and would require a strongly eurosceptic government controlling two-thirds of the Italian parliament's Chamber of Deputies.

Here is the chain of events Morgan Stanley thinks needs to happen for Italy to drop out of the EU (emphasis ours):

"So, the bar for leaving is high and the chain of events much longer than, say, for the UK to leave the EU. In Italy, a eurosceptic party would have to win an election with an absolute majority and then set in motion the exit process after having changed the constitution with a two-thirds majority in both chambers or 'just' an absolute majority followed by a referendum. As eurozone membership is indissolubly linked to EU membership, leaving the EU would also automatically mean leaving the EMU."

As it stands, the Northern League and Five Star Movement, who are the most likely parties to form a government, control a combined total of 347 seats of the 630 in Italy's Chamber of Deputies. That's 74 short of a two-thirds majority.

If Italy does hold another election, as is expected, it seems unlikely that these two parties will increase their combined share of seats by the required margin, especially given that their recent aborted attempt to form a government is likely to have been poorly received by the Italian voting public.

Of course, a League/Five Star alliance could theoretically pull Italy out of the EU without a referendum, but it seems highly unlikely given the huge controversy doing so would cause.

SEE ALSO: Everything you need to know about the Italian political crisis — which is 9 years in the making and could bring about the demise of the eurozone

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• Morgan Stanley analysts recently published a "defensive scorecard," highlighting the sectors that best withstood downturns over the past 25 years. 
• "We think a rotation to more defensive market leadership is coming later this year and into 2019," they said. 
• They included top stock picks in the six top sectors. 

Not all defensive sectors are created equal. And when the next major stock market downturn hits, Morgan Stanley wants its clients to be positioned in the best-possible way. 

A team of nearly three dozen analysts recently compiled a scorecard of the best defensive sectors, based on their study of nearly 25 years of market data. They acknowledged it's a limited timeframe that spans three cycles at most and is skewed by the tech bubble and credit crisis. Still, they considered the study a good starting point for thinking about the next downturn.

Michael Wilson, the chief US equity strategist, warned that higher interest rates and less synchronous economic growth would lead to more volatile markets. He now reckons that an extended bear market may already be underway, but will lack the big 20%-40% pullbacks that characterized the last three bear periods dating back to 1987.

"We think a rotation to more defensive market leadership is coming later this year and into 2019 as the market begins to contemplate slowing growth and an aging cycle," the analysts wrote in a note on Thursday. "Before that rotation begins in earnest, we test traditional notions of defensiveness and assess if what was defensive in the past will continue to be so in the future."

Starting with what doesn't work well during downturns, they found that financials saw the largest decline in both returns and risk.

And in assessing what works defensively, they looked into which sectors tend to outperform the market during its sharpest downturns, defined as the bottom quintile of weekly returns. They also examined relative performance during monthly market downturns, performance at times when volatility spikes as prices are falling, and the volatility of weekly returns.

Here are the sectors they identified as "defensive classics" because their current fundamentals do not suggest they'll be any less protective in the future: 

SEE ALSO: 'The winner takes all': A $17 billion investor breaks down the huge opportunities lurking in a corner of the market that has spooked Wall Street

Aerospace & Defense

Aerospace on its own is cyclical because it relies on the airline industry, which tends to sway with the economy.

However, defense stands out as one that generates revenue from the government even when the rest of the market is faltering, the analysts said. The Trump administration requested $716 billion in 2019 defense spending from Congress, a 13% increase over 2017, and this escalation is bullish for companies that supply the government, according to Morgan Stanley. 

"In addition, while relations with North Korea could potentially improve, developments in the Middle East maintain the elevated threat environment as do uncertain China / Russia relations," they said. "Net-net, we forecast a 10-15% total return annually for Defense Primes, consisting of 10%+ annual growth and a 1-2% dividend yield through decade-end."

Their top pick for this sector is Lockheed Martin. 

Beverages

The higher pricing power of the companies and higher growth outlook are among the reasons why this is one of the best defensive sectors, the analysts said. 

One concern they have for household products in general is that competition from Amazon and discount retailers could keep prices in check. While that's good for consumers' pockets, it could mean less revenues for companies. 

Beverages, however, don't face this headwind as much because of the diverse locations at which they're sold, fewer private-label offerings versus household and personal care products, and immediate consumption. 

Morgan Stanley's top pick in this sector is PepsiCo. 

Healthcare Equipment & Supplies

This is a sector that's relatively guarded from healthcare-specific risks such as the pressure to lower drug prices, Morgan Stanley said. 

Also, greater innovation in the space as well as growth in emerging markets should support the sector. 

The top picks here are Abbott Labs, Boston Scientific, and Teleflex.

• Professional athletes who sign multimillion-dollar contracts come into windfalls like most people will never see.
• Steve Finley, a financial adviser with Morgan Stanley, used to play professional baseball, and now he advises MLB players on how to manage their sudden income.
• His advice, which includes hiring a team that can create checks and balances to avoid fraud and avoiding business deals for the first year, is applicable to people outside the sports world.

I won baseball’s version of the lottery in 1987 when I was drafted by the Baltimore Orioles. Times have changed dramatically since I was drafted. A $5,000 signing bonus and $600 monthly salary might not sound like much, but I turned it into a 19-year Major League Baseball career that included a World Championship and five Gold Glove awards.

Today, I help young players make their baseball earnings last a lifetime. As a financial adviser with Morgan Stanley’s Global Sports & Entertainment, I often talk with players before they’re even drafted.  My message? How you prepare for the MLB draft can have a huge impact — on both your baseball career and your financial future. 

The same rings true for anyone coming into a windfall. Whether it be through a signing bonus, a movie advance or an inheritance, the twist and turns of life can leave high net worth individuals with new and unique challenges they must address.

The odds of receiving a windfall like this are extremely low — college athletes have a 3.5% chance of going pro and about 90% of actors are unemployed. But for those who are fortunate enough to receive them, windfalls that are managed correctly can lead to financial success for the rest of one’s life. But if handled improperly, they can leave you in a worse financial situation than you were before.  

So, don’t squander this opportunity of a lifetime. Take a page from my playbook and remember these tips:

1. Don’t wait. Assemble your team of advisers now

A windfall is, by definition, unexpected, so prepare before one comes your way. Professional sports draft deals, for example, are completed at lightning speed — within hours, even minutes, of making a player an offer. Make a mistake and it could cost you a lot of money. That's why I counsel my clients to get their team in place as soon as possible. Your team should include an agent (for sports or entertainment), a Certified Public Accountant (CPA), and a financial adviser who communicate regularly about your financial situation and goals. That way, when a cash event occurs in your life, you’ll be ready.  

2. Protect against scams

I advise that it’s not reasonable to expect a pitcher to be a great catcher, or a center fielder to be a great short stop. You want the best person for each position. Likewise, you should avoid one-stop-shop advisers. For example, don’t let one person advise you on both your tax needs and your financial investments. That’s how scams can happen. So, make sure there’s oversight between your agent, CPA, and financial adviser. This will help create a solid system of checks and balances.

3. Ready, set, negotiate

If you’re dealing with a signing bonus, it will likely be your first exposure to a significant amount of money. And it will come with a sizable side of taxes. Should you take a lump sum, or spread out payments over time? What are the tax implications of receiving your bonus in California verses Florida? Be careful here. Work with your CPA, because these decisions could affect you financially. Your agent can help you negotiate contract terms you may not have known were negotiable, like help paying for college when your sports or entertainment career is done.

4. Pump the breaks on spending

Whether a windfall is $500,000 or $5 million, it’s likely going to be much more money than a person has seen at one time. In response, a lot of those coming into windfalls spend it before the ink dries on the check.

Young athletes who have just been drafted, for example, may buy expensive cars, houses, bling — you name it. The money just vanishes as young players try to keep up with the veterans.  For example, there was a player during my MLB days that got “tricked” into purchasing a $200,000 car just to show up a veteran teammate who claimed to have one on-order as a practical joke. The last thing you want is to get to the end of the year and think, “Where did it all go?”

Professional athletes are at particularly high risk of doing this. In fact, MLB players file bankruptcy four times more often than the national average. According to Sports Illustrated, 78% of NFL players are bankrupt or under financial stress within two years of exiting the league, and 60% of NBA players are bankrupt within five years.

5. Just say no

If you come into a windfall, people are going to find out. That’s when people come out of the woodwork with “great investment” ideas. Friends, family, and strangers with no business experience start seeking you out. My personal advice: Stay away from business deals your first year.

I’ve seen players lose hundreds of thousands on restaurants, car dealerships, hometown baseball academies, and other bad deals. Learn to say “no.” And if you can’t, ask them to send their proposals to your financial adviser to review. Let them be the bad guy.

Whether you’ve just been drafted into a professional sports league (the MLB draft is right around the corner in June) or are even selling a company or are receiving some other windfall — it can be like winning the lottery. That lottery ticket can come with huge distractions. At worst, it can make you spend money you don’t have. With the right team in place, you can avoid the all-too-common pitfalls that lead to financial downfall. Asking questions is both empowering and free of charge. Not knowing the answers can cost you financially. 

Steve Finley is a Financial adviser with the Global Wealth Management Division of Morgan Stanley in Rancho Santa Fe. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.

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• JPMorgan Chase has hired a senior investment banker from Morgan Stanley to add more firepower to the firm's industrials coverage.
• Lawrence Steyn joins JPMorgan as a vice chairman and was previously a managing director covering industrial companies at Morgan Stanley.
• While industrials deal activity hasn't been outsized in 2018, it's been among the hottest sectors for banker moves this year.

JPMorgan Chase has hired a senior investment banker from Morgan Stanley to add more firepower to the firm's industrials coverage, according to an internal memo viewed by Business Insider.

Lawrence Steyn, formerly a managing director with Morgan Stanley, is joining JPMorgan as a vice chairman of investment banking, according to the memo from Eric Stein, the firm's head of North American investment banking. The contents of the memo were confirmed by a spokeswoman.

"Lawrence joins the firm from Morgan Stanley, where he spent more than a decade leading coverage of many of the top industrial companies and has led several landmark transactions in the sector," Stein wrote in the memo. "He will partner closely with our Diversified Industries team and product bankers, and his client relationships are a great complement to our existing strong franchise in this sector."

Morgan Stanley spokesmen did not immediately respond to requests for comment.

It's been an active year in senior investment banking moves generally, and the industrials sector, despite being middling in terms of deal activity, has seen a number of moves.

"There have been more managing-director level moves of note among industrials bankers than any other sector so far this year,"Albert Laverge, global head of the banking and markets practice at headhunting firm Egon Zehnder, told Business Insider.

Jefferies last month poached Peter Scheman from Goldman Sachs to be its new co-head of Americas industrials banking, while Goldman hired senior chemicals banker Ken Grahame away from Barclays. In March, David Hunt left UBS to join Greenhill as its co-head of industrial corporate advisory. And Wells Fargo last month hired Christopher Wofford as a managing director covering the transportation and logistics sector.

The hiring of Steyn bolsters JPMorgan's industrials practice, which has seen churn among its industrials ranks as well, according to people familiar with the matter. 

Industrials isn't the only sector JPMorgan is beefing up. The addition of Steyn also comes on the heels of two senior oil and gas investment banking hires by JPMorgan in recent weeks: In late May, Jonathan Cox joined JPMorgan as global cohead of oil and gas investment banking and cohead of its Houston office, while Michael Johnson joined the firm as a vice chairman of investment banking. Each came over from Morgan Stanley as well. 

This post has been updated from its original version.

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• Short sellers targeting volatility were served a swift comeuppance earlier this year when price swings spiked the most on record, decimating positions.
• Morgan Stanley warns that these traders haven't learned their lesson, and that a similarly perilous situation is mounting right now.
• The firm also provides recommendations around where traders should be looking to get long volatility.

It's been said that repeating the same mistake and expecting a different result is a psychological fallacy.

If so, one group of investors missed the memo, because they're once again heading down a dark path that led them astray mere months ago.

We're referring to volatility short sellers, who were caught off-guard by a market shock in early February that left them scrambling to cover positions, putting even more pressure on existing holders. That, in turn, wiped out billions from the values of the investment products used by those traders, with some dissolving entirely.

To say it was a disaster would be an understatement. Traders, who for months piggybacked off a placid market, reaping easy profits from short-volatility positions as stocks stood still, were jolted back to a reality filled with price swings.

Which is why it's so disappointing to hear that at least some of these investors are back up to their old tricks, gleefully shorting volatility as if nothing happened.

It's a development that's caught the eye of Morgan Stanley, which experienced some blowback from short-volatility enthusiasts earlier this year after it recommended that investors go long. In order to defend their call, the firm ran so-called stress tests to see how susceptible various asset classes are to a shock.

Their findings while not altogether surprising, paint a gloomy picture ahead for those still shorting volatility.

Volatility stress test

Before we get into the results Morgan Stanley's stress test, let's cover the ground rules.

First, the firm is defining a volatility "shock" as an instance when three-month implied volatility reverts to long-term averages. As previously mentioned, expectations of price swings were subdued throughout 2017, and have only recently started showing signs of life.

Second, the firm is assessing a measure called "carry," which it defines as the gap between three-month implied volatility and its corresponding one-month realized measure. For the purposes of this exercise, carry is calculated in terms of how many months current levels need to persist in order for short sellers to absorb a shock.

In the end, Morgan Stanley discovered that current carry levels need to continue for more than five months in order for sellers of volatility to avoid a similar meltdown to the one in February.

"Equity, credit, G10 FX and rates need two quarters of current carry levels to be protected from mean-reversion in implied vols," Phanikiran Naraparaju, a strategist at Morgan Stanley, wrote in a client note. "This is the time needed to build up enough cushion to withstand a vol spike. Vol sellers don’t have enough runway."

Morgan Stanley recommendations

With all of that established, the question then becomes: If shorting volatility is such a fool's errand at this point, where should investors go long?

Morgan Stanley makes a handful of recommendations informed by the chart below, which plots assets based on the percentile of their 3-month implied volatility. As you can see, all of the firm's suggestions deal with assets whose past price swings are in the 30% percentile or lower.

Here they are, with all quotes attributable to Naraparaju and his colleagues:

1) Buy 50-day puts on CDX HY (high-yield credit-default swaps)

"Breakeven relative to spot is just a 3pts decline in CDX HY ... HY credit has been realizing well and carry is fairly low"

2) Buy 40-day USDJPY (US dollar-yen) puts expiring in one year

It's "a way to protect against USD reversal" ... "Although JPY vol carry is very positive, the unusually low levels of current implied vols mean the vol reversion also quite large."

3) Buy Nikkei 30-day puts expiring in six months

"We like positioning for a stronger JPY and weaker Japan equities with Nikkei 6m 30D puts ... The volatility unwind of early February, followed by Fed hawkishness and trade concerns, has compressed the vol spread between Japan and Europe versus S&P 500, making Japan equity vol attractive to own."

4) Buy long-dated calls on brent crude

"We think that both the spot and vol curve favor buying long-dated calls."

5) Buy USD 3m10y receivers

"Our rates strategists believe that Treasury yield duration will end the year lower than 3%. Duration short positioning in CFTC futures is at record levels, making yields vulnerable to sharp declines on unwind."

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• Morgan Stanley's Silicon Valley tech summit is underway.
• The firm has sent a legion of decision-makers to the West Coast to find the next tech companies to partner with.
• It is meeting with more than 150 technology providers in Palo Alto, California, this week.

When most big banks seek out vendors to help them rejuvenate their tech infrastructure, they set up calls and get meetings on the calendar. But Morgan Stanley, in a sign of the growing importance of partnering with the right tech firms, jets off a fleet of its key decision-makers to Silicon Valley.

The New York-based bank has boots on the ground this week to meet with more than 150 technology providers as part of its annual CTO Innovation Summit in Palo Alto, California.

The event solves a common pain point that both tech entrepreneurs and large firms face: They can't find each other.

"I have been in the shoes of the entrepreneur," Shawn Melamed, Morgan Stanley's head of technology business development and the firm's innovation office, told Business Insider in an interview. "You can waste years trying to sell to the people who are not the right buyer."

"Every important decision-maker is flown out there, division by division," he added. "When you present to our company, you know the right people are in front of you."

Big technology execs at Morgan Stanley attending the conference include the bank's head of technology, Rob Rooney; head of wealth-management technology, Sal Cucchiara; head of institutional securities technology and international, Steve Mavin; head of enterprise technology and risk, Michael Poser; and head of corporate and funding technology, Bobby Gilja.

The event highlights the firm's focus on collaborative innovation, Melamed said. It connects executives who span the bank's business lines with startups working on projects that could improve life for Morgan Stanley employees or clients, translate into a new business, or reduce costs. The startups are nominated by venture-capital investors and include tech-focused areas like machine learning, artificial intelligence, data and analytics, and cybersecurity.

Companies at the summit include the machine-learning firms Optimizing Mind and Wave Computing, the big-data company SQream, and the messaging-technology company Smooch.

After Morgan Stanley meets with a startup, it decides whether it wants to spend more time with the company based on the maturity of its product offerings, team, and other factors.

To be sure, not all the firms are in financial services. Qualtrics, which provides technology services relating to surveys, is used by Morgan Stanley's wealth division. The bank first met the firm through its summit.

"We went through a journey with them," Melamed said. "At first, there was very small deployment and then it exploded to all of our wealth-management clients. And now all of our employees."

Delphix, a data firm, and Illumio, a cloud-security company, are also being recognized at this year's summit.

Wall Street banks have long realized they can't go it alone and need to rely on outside firms to power them. In fact, banks have begun to rely even more heavily on third-party vendors, according to a recent report by Broadridge, the financial-technology provider.

"Given the imperative to cut costs and the opportunities offered by new technologies, many institutions are now actively seeking to embrace partners," the report said. "They are leveraging partnerships to add innovation in areas where they lack expertise or scale, or to enable them to focus the expertise they do have on their most differentiating areas."

Morgan Stanley's CTO Summit, which the bank has run for 18 years, has planted the seeds for big projects.

Cloudera, which the bank honored in 2017, played a critical role in the development of a platform used within the bank's wealth-management division. Today, data from the platform is used to send personalized emails to clients when the markets go berserk.

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• Morgan Stanley's chief executive officer James Gorman thinks fixed income could be an exciting business for the bank if two things happen.
• It's a business that crushed it in the first three months of the year. But it's also one the bank left for dead in 2015. 

A trading unit at Morgan Stanley has made a big turnaround, and chief executive James Gorman now thinks there's a chance it could again become red hot.

Gorman, speaking at the  Morgan Stanley US Financials Conference in New York on Tuesday, said fixed-income trading could be the "most exciting business" if two things play out. 

Fixed income trading was a standout in the firm's first quarter earnings, posting its best results in the unit since 2015. 

Still, it's one the bank took an axe to in 2015, cutting 25% of its workforce, replacing its leadership, and slashing bonuses.

But things are looking up,  Gorman said. And the good times could keep rolling if market volatility hangs around and the central banks start to raise rates. Here's Gorman:

"Fixed income is the most exciting business if two things happen. One is some volatility creeps into the market that you see some QE and you see the Fed ... start raising rates. Eventually Europe will raise rates, eventually Japan will raise rates. See, you've got both the recovery and the credit part of the fixed income business and micro part and the recovery potential in the macro pod and that's sort of what we're seeing."

Ted Pick, Morgan Stanley's head of sales and trading, said in early 2016 that the decision to rightsize the business was largely the result of the fixed income wallet, or total revenue pool, shrinking by around 40%. Revenues for the business in the fourth quarter of 2015 came in at just $550 million.

Gorman said that pool has been expanding a bit since then. Morgan Stanley's market share for fixed income trading stands at around 8 to 10%, he added. 

Morgan Stanley's fixed income results of $1.9 billion for the first quarter this year were only slightly behind those of rival Goldman Sachs, which posted revenues of $2.1 billion for the business. 

As for Gorman, he's bullish that fixed income revenue could continue to surpass $1 billion per quarter. 

SEE ALSO: Morgan Stanley posted a big rebound in a business it once left for dead

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• Morgan Stanley is spending billions both to bolster its existing technology infrastructure and to invest in new technologies.  
• Specifically, the bank's tech spend is about $4 billion per year, CEO James Gorman said.  
• As a percentage of its overall expenses, Morgan Stanley could be devoting twice the amount to tech spend as Citi. 

Morgan Stanley is spending around $4 billion annually to invest in technology, CEO James Gorman said on Tuesday.

That's around 40% of the firm's $10.3 billion expense budget excluding compensation costs in 2017. Still, it's not clear if the figure Gorman mentioned includes compensation for tech employees. As a percentage of overall expenses, Morgan Stanley could be devoting twice the amount to tech spend as rival Citi.

"I think what you're seeing is the challenges, we're spending $4 billion roughly, finding the right share of that $4 billion on investments for the future versus maintaining the ship we've got today," Gorman said, speaking at the Morgan Stanley US Financials Conference in New York.

Bringing electronic trading to its fixed income unit is a "major priority" for the bank's tech investment, Gorman said. 

Morgan Stanley has been putting a greater focus on technology at the firm. Rob Rooney, who previously oversaw the bank's operations in Europe, the Middle East, and Africa, as well as its efforts in tech, was transitioned to New York to oversee technology exclusively.

The bank is also investing heavily in digital within its wealth-management business. It launched a robo adviser in late 2017, primarily geared at children of its existing clients.

Morgan Stanley held its annual CTO Innovation Summit in June, which helps it connect with vendors and startups on new nascent technology. 

Automation, machine learning and artificial intelligence were among some of the innovation priorities explored at this year's event. 

SEE ALSO: Citigroup's CEO has revealed just how many billions the bank is spending on tech — and it shows the speed with which Wall Street is changing

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• Environmental, social, and governance investing — also known as ESG — has exploded in popularity, with roughly $23 trillion being invested with at least a partial ESG mandate.
• Morgan Stanley sees several factors combining to make ESG an even bigger investment force than it already is.

Sustainable investing is here to say, whether money managers like it or not. And if Morgan Stanley's prognostications are correct, it's about to start making its influence felt to an unprecedented degree.

The firm published a report on the state of environmental, social, and governance investing — or ESG, as it's more commonly called — and found it to be at a tipping point. The strategy is growing at a time when investor reservations are vanishing, creating an ideal situation for growth, according to Morgan Stanley.

Money managers already have almost $23 trillion earmarked with an ESG mandate, which is roughly 25% of the entire global investment universe. Roughly $8.7 trillion of that is US money, while European investors account for another $12 trillion, Morgan Stanley data show.

As the chart below shows, 84% of the 118 assets owners surveyed by the firm are at least "actively considering" integrating ESG criteria into their investment decisions, with nearly half saying they're seeking implementation across the board. For context, the group spans public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies, and other large asset owners worldwide.

While the high percentage of desired adoption is a positive sign for ESG, the strategy must still contend with the perception that, by engaging in sustainable investing, traders are sacrificing potential returns in the name of a good cause. Morgan Stanley recently conducted a separate individual investor survey that found 57% of respondents believing ESG requires a "financial trade-off."

After all, as the chart below shows, proof of performance remains the top deciding factor for investors considering an ESG strategy.

Luckily for ESG enthusiasts, the firm says this misguided idea seems to be fading.

"It appears that large institutional asset owners may be replacing this view with a more sophisticated recognition that ESG factors provide unique insights into long-term risks and opportunities that might not be captured by traditional financial factors," Morgan Stanley analysts wrote in a report.

What's more, the firm finds that the future looks bright for ESG, considering the investment behaviors of millennials. Morgan Stanley's 2017 survey of individual investors found they're more than twice as likely as other generations to consume products made by companies seen as sustainable.

With all of that established, it's clear that ESG has a bright future of growth ahead of it, especially as the notion of a value trade-off evaporates.

"Fueled by a convergence of long-term performance considerations with trends like mission alignment, regulations and stakeholder demand, interest in sustainable investing has both accelerated and evolved," the firm said. "We expect many more opportunities to open up for those managers who are able to build the products, relationships and trust that can help investors generate strong risk-adjusted returns while having a positive impact on the world."

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• Starbucks cut its sales-growth forecast on Wednesday to 1% from 3%.
• Shares plunged 8% on the news.
• Morgan Stanley downgraded the stock, slashing its price target to $59 from $72.
• Follow Starbucks' stock price in real-time here.

Starbucks on Tuesday lowered its third-quarter same-store-sales growth forecast to 1% from its precious estimate of 3%-5%, sending shares plunging 8%. The coffee giant also said it would close roughly 150 underperforming US stores.

While many sell-side research departments remain optimistic, Morgan Stanley took the opportunity to downgrade Starbucks, citing a "clearly decelerating top-line."

"Starbucks' 3Q pre-announcement on disappointing sales in both the US and now China are compelling enough to lower our investment rating to EW from OW, especially in light of continued uncertainty in the FY19 EPS outlook and time to recover sales," analyst John Glass said in a note to clients.

"In addition to cutting our EPS estimates for this year and next, we have downwardly adjusted our base case multiple (25x to 22x) to reflect lower anticipated EPS growth over at least the next year."

Same-store sales are particularly important for companies like Starbucks that have accumulated a vast retail footprint. Some analysts are worried that the chain may have reached full penetration in the US, making comparable sales all the more important to its continued growth.

Morgan Stanley's new price target of $59 is now below Wall Street's average target price of $61.72, according to data from Bloomberg, but still 15% above where shares were trading Wednesday.

Elsewhere on Wall Street, the stalling sales were seen as "one step back, two steps forward," UBS said.

"Despite the reductions, SBUX articulated plans & urgency to accelerate growth through tangible sales drivers & streamlined ops, while keeping LT guidance unchanged," analyst Dennis Geiger said in a note to clients.

"We expect shares to be down modestly today, w/ support from: a US sss acceleration to 3% in June, low expectations that likely already embedded a guidance reduction, and potential that comps bottomed & could reaccelerate in FY19."

Starbucks is down 8.84% this year.

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• Starbucks cut its sales-growth forecast on Wednesday to 1% from 3%.
• Shares plunged 8% on the news.
• Morgan Stanley downgraded the stock, slashing its price target to $59 from $72.
• Follow Starbucks' stock price in real-time here.

Starbucks on Tuesday lowered its third-quarter same-store-sales growth forecast to 1% from its precious estimate of 3%-5%, sending shares plunging 8%. The coffee giant also said it would close roughly 150 underperforming US stores.

While many sell-side research departments remain optimistic, Morgan Stanley took the opportunity to downgrade Starbucks, citing a "clearly decelerating top-line."

"Starbucks' 3Q pre-announcement on disappointing sales in both the US and now China are compelling enough to lower our investment rating to EW from OW, especially in light of continued uncertainty in the FY19 EPS outlook and time to recover sales," analyst John Glass said in a note to clients.

"In addition to cutting our EPS estimates for this year and next, we have downwardly adjusted our base case multiple (25x to 22x) to reflect lower anticipated EPS growth over at least the next year."

Same-store sales are particularly important for companies like Starbucks that have accumulated a vast retail footprint. Some analysts are worried that the chain may have reached full penetration in the US, making comparable sales all the more important to its continued growth.

Morgan Stanley's new price target of $59 is now below Wall Street's average target price of $61.72, according to data from Bloomberg, but still 15% above where shares were trading Wednesday.

Elsewhere on Wall Street, the stalling sales were seen as "one step back, two steps forward," UBS said.

"Despite the reductions, SBUX articulated plans & urgency to accelerate growth through tangible sales drivers & streamlined ops, while keeping LT guidance unchanged," analyst Dennis Geiger said in a note to clients.

"We expect shares to be down modestly today, w/ support from: a US sss acceleration to 3% in June, low expectations that likely already embedded a guidance reduction, and potential that comps bottomed & could reaccelerate in FY19."

Starbucks is down 8.84% this year.

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• Oracle's shares sunk 7% on Wednesday following news that the company would no longer report metrics for cloud, a segment once seen as vital to the company's growth.
• Oracle characterizes its new reporting structure as a more accurate way to reflect how customers use its software licenses. The company says that customers are buying more traditional licenses, but using them in the cloud. 
• Investors, many of whom see cloud growth a vital to their understanding of the company, were skeptical of Oracle's move.

Oracletraded down over 7% on Wednesday, following a rebellion from investors after the company made the decision to stop reporting specific metrics for its cloud business. That cloud business was once believed to be the database giant's saving grace against its younger, fast-growing rivals at Amazon and Google. 

In a call with investors Tuesday, CEO Safra Catz characterized the newly consolidated reporting structure as a more accurate way to understand Oracle's complex business, in which companies frequently buy on-premise licenses, but then go on to use those licenses for cloud services. 

"Previously, all of those licenses and its related support revenue would have been counted entirely as on-premise, which clearly it isn’t," Catz said.

But even the most bullish of investors were unconvinced of the move. Some analysts have suggested that even if the move is justified, it "overshadows" an otherwise successful earnings report.

"As investors seek additional information to try to garner confidence on the ability and timing of the higher-growth parts of the business overcoming the drags of declining legacy businesses, Oracle management went the opposite direction by consolidating revenue segment breakdown into just four categories," wrote Morgan Stanley analyst Keith Weiss, who favorably rates Oracle as overweight. 

Barclays analyst Raimo Lenschow, who also rates Oracle as overweight, was more sympathetic to Oracle's decision, but wrote that it could take a toll on the stock price for weeks to come.

"We get management's dilemma here due to an increasingly blurred picture between what is cloud usage and what is on-premise usage," Lenschow wrote. "However, investors will likely need a few quarters to get comfortable here."

Sitting on the more skeptical end of the spectrum is Pat Walravens, an analyst with JMP Securities, who has a neutral rating on the stock. 

"The bear case on Oracle all along has been that they say the numbers the way they want to present them," Walravens told Business Insider. "When you look at the bottom line, there is really no growth."

Walravens highlighted Oracle's decelerating growth in the cloud, which fell from 51% year-over-year growth in Q1 2018 to just 21% in Q4 2018. 

But Walravens said that it's not just about cloud metrics. He sees the reporting change as part of a systemic issue with Oracle and he's interested in seeing a "pretty fundamental change" in how management approaches its business. 

"The way they think about their business is that it's about winning. Larry Ellison loves to win," Walravens said. "I think what you need to see them focus on is their customers winning. They really need to become more customer centric." 

Ultimately, though, even Walravens thinks there's no reason to panic, and that Oracle still has a lot going for it.

"It's super profitable, it generates a lot of free cash-flow and it's not very expensive," he said. 

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• President Donald Trump's proposed "Space Force" could help fuel the $1 trillion intergalactic economy, Morgan Stanley says.
• The bank is tracking 100 private companies poised to profit from interstellar industries. 

If President Donald Trump successfully organizes his so-called Space Force, it could speed up investment in what Morgan Stanley sees as the next trillion-dollar economy.

In a note to clients Friday, the bank doubled down on its intergalactic thesis from last October, saying the Space Force "could address critical vulnerabilities in national security, raising investor awareness in the formation of what we see as the next trillion-dollar economy."

Morgan Stanley has already identified 20 stocks staking their place in the space race, and says it's monitoring 100 other private companies across sectors including satellite internet, rockets, space tourism, and asteroid mining as the push to pioneer this new frontier heats up.

"Our conversations with various actors (current and retired) in the US government, military, and intelligence communities overwhelmingly indicate that space is an area where we will see significant development," a team of analysts led by Adam Jonas, the bank's autos analyst, wrote in Friday's note. "This development could enhance US technological leadership and address vulnerabilities in surveillance, mission deployment, cyber, and AI."

Space is already a $350 billion economy, or roughly half a percent of the world's GDP, the bank estimates. And as more investments pour into technologies like reusable rockets that make space exploration cheaper, that economy could grow to $1 trillion, especially as countries recognize the need for a space presence to maintain national security.

Still, though, it's not clear how exactly the "Space Force" might come about — or even which branch of the current military it may fall under — but Morgan Stanley says it could actually be a net positive for the Department of Defense.

"Based on conversations with some Washington insiders, establishing a Space Force as a standalone military branch, while potentially contentious, could be overall beneficial for the US Defense Department," said Morgan Stanley. "That said, the President must now garner the support of Congress to move on the initiative, through both funding and authorization."

That last part may prove difficult, but the President seemed committed to the idea when he signed a "space policy directive" last week. 

"It is not enough to merely have an American presence in space," President Trump said at the time. "We must have American dominance in space. We are going to have the Air Force, and we are going to have the Space Force, separate but equal."

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• President Donald Trump's proposed "Space Force" could help fuel the $1 trillion intergalactic economy, Morgan Stanley says.
• The bank is tracking 100 private companies poised to profit from interstellar industries. 

If President Donald Trump successfully organizes his so-called Space Force, it could speed up investment in what Morgan Stanley sees as the next trillion-dollar economy.

In a note to clients Friday, the bank doubled down on its intergalactic thesis from last October, saying the Space Force "could address critical vulnerabilities in national security, raising investor awareness in the formation of what we see as the next trillion-dollar economy."

Morgan Stanley has already identified 20 stocks staking their place in the space race, and says it's monitoring 100 other private companies across sectors including satellite internet, rockets, space tourism, and asteroid mining as the push to pioneer this new frontier heats up.

"Our conversations with various actors (current and retired) in the US government, military, and intelligence communities overwhelmingly indicate that space is an area where we will see significant development," a team of analysts led by Adam Jonas, the bank's autos analyst, wrote in Friday's note. "This development could enhance US technological leadership and address vulnerabilities in surveillance, mission deployment, cyber, and AI."

Space is already a $350 billion economy, or roughly half a percent of the world's GDP, the bank estimates. And as more investments pour into technologies like reusable rockets that make space exploration cheaper, that economy could grow to $1 trillion, especially as countries recognize the need for a space presence to maintain national security.

Still, though, it's not clear how exactly the "Space Force" might come about — or even which branch of the current military it may fall under — but Morgan Stanley says it could actually be a net positive for the Department of Defense.

"Based on conversations with some Washington insiders, establishing a Space Force as a standalone military branch, while potentially contentious, could be overall beneficial for the US Defense Department," said Morgan Stanley. "That said, the President must now garner the support of Congress to move on the initiative, through both funding and authorization."

That last part may prove difficult, but the President seemed committed to the idea when he signed a "space policy directive" last week. 

"It is not enough to merely have an American presence in space," President Trump said at the time. "We must have American dominance in space. We are going to have the Air Force, and we are going to have the Space Force, separate but equal."

SEE ALSO: MORGAN STANLEY: Here are 20 companies that are best exposed to the growing space economy

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• Investor nerves have been rattled by the mounting prospect of an all-out global trade war as major US indexes tumble.
• Morgan Stanley has identified one area of the stock market it says will be a safe haven of sorts for traders worried about their equity exposure.

Fears of an all-out trade war have frazzled investor nerves, as indicated by the large drops across major US equity indexes.

But before investors exit the stock market entirely, Morgan Stanley wants them to know that there is a safe haven of sorts for equities, buried among the market wreckage.

The stocks in question are known as "small caps," or companies with meager market values, at least relative to benchmarks. Often overlooked when more actively traded mega-cap shares are soaring, Morgan Stanley argues their fundamental picture is compelling.

First off, since small cap corporations are usually more domestically focused than their larger peers, they're better positioned to benefit from the nationalistic tax cuts afforded by the GOP tax law. Those tax savings trickle down to a company's bottom line, improving the prospects for earnings growth.

Secondly, Morgan Stanley points out that small caps are also well-positioned to see a positive effect from business-friendly deregulation.

Largely piggybacking off the boost provided by these two dynamics, small caps have crushed the broader market so far this year. Their dominance can be seen in this chart, which shows that a pair of small cap indexes (represented by the two blue lines) has dominated the S&P 500.

But this conversation is null and void without a discussion of what the market's latest and most threatening flashpoint — the escalating global trade war — means for small caps.

Luckily for investors considering a small-cap investment, Morgan Stanley finds that they're less vulnerable to what it describes as "anti-trade rhetoric." This once again comes back to the comparatively small international exposure small caps have.

In the end, small caps feature a compelling trifecta of positive attributes, offering a viable option for investors who want to stay invested in stocks, but want to be less exposed to President Donald Trump's latest trade headlines.

So with all of that established, are small caps still a good bet, despite already destroying benchmarks for much of this year? Morgan Stanley says yes. And it all comes down to growth.

"While the relative outperformance of small caps we have seen is a lot, forward growth expectations indicate it is likely to continue," Mike Wilson, the firm's chief US equity strategist, wrote in a client note. "The growth
differential between small and large caps may be widening even further from here which should extend the relative outperformance."

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• Cybersecurity firms that address data governance concerns will be the big winners in 2018, as chief security officers figure out how to better comply with regulations like the European Union's GDPR, according to a survey published by Morgan Stanley.
• In response to its survey, Morgan Stanley raised its price target on three cybersecurity companies: Varonis, SailPoint, and CyberArk, which all address specific governance issues on the minds of executives.
• But Morgan Stanley lowered its target for Symantec, a longstanding leader in cybersecurity, in response to declining interest from companies in its end-point security product.

Morgan Stanley raised its price target on three security firms after a survey of IT executives indicated that data regulations like GDPR will drive big cybersecurity spending in 2018 and beyond.

In the 2018 State of Security Spending report, published Monday, analyst Melissa Franchi wrote that Varonis, SailPoint, and CyberArk will be the big winners as chief security officers (CSOs) scramble to ensure that their companies are compliant with data governance laws.

GDPR, the strict data regulations which went into affect in the European Union on May 25, impacts any and all companies which deal with the data of people residing in the EU. Of the CSOs surveyed, GDPR was the number one driver for increased security spend in 2018, up from being the number five driver in the 2017 survey. 

Morgan Stanley raised its price target for Varonis, a data governance company, from $63 to $73 following its survey. Franchi described the company as "one of the key beneficiaries of GDPR regulation given its well positioned data governance and insider threat solutions."

Interestingly, Morgan Stanley's target is down from the $77.85 that the stock opened at on early Monday. By close, shares were down nearly 7% to $73 flat. 

It raised its target for SailPoint, an identity governance company, from $24 to $26. While only 9% of execs listed identity management as a top concern, Franchi said, this is up from the 2017 survey, and many companies will likely look to identity management to meet GDPR.  

It also raised its target for CyberArk from $56 to $65. The self-described privilege access management (PAM) company will benefit from GDPR "as enterprises look to lock down privileged accounts that have access to systems/applications exposed to personal data," Franchi wrote.

Morgan Stanley also raised its bull case for the company ForeScout from $52 to $62 in response to executive interest in Network Access Control, though it kept its base case relatively "conservative." Its base price target remains $34. 

The major exception to Morgan Stanley's price-raising spree was Symantec, a once-ubiquitous cybersecurity software provider which the survey indicated will lose considerable share when it comes to endpoint security and web security gateways in the next three years. "This raises some additional concern on the ability of Symantec to see improving enterprise security revenue growth," Franchi wrote.

Symantec currently has 8% of today's endpoint security spend, but Morgan Stanley expects this to drop to 5% in the next 36 months. For that reason, the firm dropped its target price for Symantec from $26 to $23. 

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• Morgan Stanley has upgraded utilities to "overweight" as it forecasts that bond yields have peaked for now. 
• The sector, a bond proxy, is considered a safe haven during market turmoil and becomes more attractive when bond yields fall because it pays out steady dividends. 
• It's rallied in recent weeks even as the broader market sold off amid trade tensions. 

One sector remained green as the stock market sold off on Monday: utilities.

The so-called bond proxy, preferred during times of turmoil for its steady dividends, gained 1.7% as the broader market fell on trade tensions. 

The equity strategists at Morgan Stanley expect further weakness in the stock market, and have said a lengthy bear market may already be underway.

"We think it is still too early to go full-on defensive, but it is not too early to start moving in that direction," Michael Wilson, Morgan Stanley's chief equity strategist, said in a recent note. 

"As a result, we are upgrading Utilities to overweight today [June 18] on the premise we are close enough to a top on 10-year Treasuries even if the final highs are not in. Morgan Stanley's Global Interest Rate strategy team thinks 10-year Treasury yields have topped for the cycle at its recent high of 3.12%."

Because it's considered a bond proxy, the sector's dividends would look more attractive to investors if Treasury yields fall, as Morgan Stanley forecasts.

Wilson added that the earnings-revision breadth for utilities, which gauges the number of companies revising future profits higher compared to those downgrading, moved higher over the past month. "Performance should begin to follow if even rates have not yet peaked," Wilson said. 

The list below highlights the utilities stocks that are rated "overweight" by analyst Stephen Byrd. His price targets were published on Monday June 18, and most of the stocks have rallied since then. 

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American Electric Power

Ticker:AEP

Market Cap: $33.8 billion

Morgan Stanley's price target: $67

% to Morgan Stanley's price target: -0.5%

Source: Morgan Stanley

FirstEnergy

Ticker:FE

Market Cap: $17.24 billion

Morgan Stanley's price target: $36

% to Morgan Stanley's price target: 2.2%

Source: Morgan Stanley

NextEra Energy

Ticker:NEE

Market Cap: $79.01 billion

Morgan Stanley's price target: $169

% to Morgan Stanley's price target: 2.4%

Source: Morgan Stanley

• Google should give away its $49 Home Mini smart speaker free to every US household, Morgan Stanley argues.
• Such a giveaway would cost $3.3 billion but ensure that Google is in prime position for what could be the next major platform shift.
• Smart speakers are expected to be key to the rise of "voice commerce," and Amazon's foothold in consumer homes gives it a strong lead.

Morgan Stanley's financial analysts argue that for Google, there's no place like Home.

In four years, 70% of US households are predicted to own a smart speaker, which consumers are expected to increasingly turn to for shopping and entertainment. To ensure that a big share of those devices are Google's, the company should give free Google Home Minis to consumers in the United States and maybe even across the globe, the Morgan Stanley analyst Brian Nowak wrote in research note Thursday.

Smart speakers, like the Google Home and the Amazon Echo, are a hit with consumers and will continue to sell fast, Nowak says, adding that because these devices present so many important opportunities, Google needs to move fast and get its smart gadgets into homes faster than competitors.

If it doesn't, Amazon's Echo smart speaker stands to emerge as the dominant device, and that means a lot of bad things for Google, Morgan Stanley says.

For starters, there's the growing popularity of voice-shopping — the act of shouting to a smart speaker that there's no more laundry detergent or Fruit Loops and leaving it to the machine to place the order with a retailer. Morgan Stanley says that if consumers aren't shouting to a Google Home device, then that could "threaten the long-term growth" of Google's lucrative retail-search advertising business, which accounts for 20% of Google's US ad revenue.

In addition, the more homes Google's smart devices get into, the bigger the opportunity to develop the company's promising digital-valet category, such as Duplex, Morgan Stanley wrote.

The analysts also imagine a dual giveaway, pairing the Home Mini with a free YouTube Premium trial, which they argue could spur adoption of YouTube's new subscription music service.

"If 15% of free trial US households begin paying for YouTube Premium," the analysts wrote, "it would generate $1.8 billion of incremental annual YouTube revenue. This would potentially (increase YouTube revenue 6%) and pay back the total device cost in 4 years." The analysts added that this could add to YouTube's value, which the bank earlier this year estimated was $160 billion, more than GE, IBM, or Disney.

Google sells the Home Mini device for $49 (though it's often available for less with various promotions). Nowak reckons the cost of giving the devices away free to every US household would total $3.3 billion — that's a lot of money, but for a company as large as Google it's only 3% of 2019 expected operating expenses. That could prove to be money well spent, if it safeguards Google's valuable retail search business.

The bank laid out the reasons they might be wrong and those include the possibility consumers may prefer interacting with digital valets via their mobile phones, which could “offset demand” for the speakers. And because the analysts estimated that 50% of America’s homes are already Amazon Prime members, those consumers might be less likely to want a Google Home device.

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• $15 billion for a startup that makes e-cigarettes would have been laughable several years ago.
• That was before Juul Labs, the San Francisco-based company behind America's most popular vape pen, put its device on the market.
• In a recent memo, Morgan Stanley analysts credited the Juul with "driving a revival in the US e-cig market," adding that sales of the Juul "accounted for almost the entire incremental increase in US e-cig sales."

$15 billion for a startup that makes e-cigarettes would have been laughable several years ago. That was before Juul Labs, the San Francisco-based company behind America's most popular vape pen, put its device on the market.

The lofty valuation came last week as part of an announcement that Juul was raising $1.2 billion for an overseas expansion.

Users — some of them former smokers — swear by the devices, known as Juuls, because they pack a powerful nicotine punch.

Teens love them too. It's a trend that terrifies public health experts who say teens are attracted to the Juul's fruity flavors and discrete appearance. Not surprisingly, the Juul has rocketed into first place as the most popular vape pen in the US, having generated a whopping $224 million in retail sales between November 2016 and November 2017 and snagging a third of the total e-cig market share.

Beyond driving sales, however, the Juul may be singlehandedly resurrecting the e-cigarette market, which had been slumping since roughly 2014 as the devices failed to satisfy smokers.

In a recent research note, Morgan Stanley analysts credited the Juul with "driving a revival in the US e-cig market," adding that sales of the Juul "accounted for almost the entire incremental increase in US e-cig sales as a percent of total cigarette and e-cigarette sales in the last year."

'A growing headwind to US cigarette volumes'

The Juul is doing so well that it is even starting to encroach on Big Tobacco's terrain, the note said.

"We believe JUUL has become a growing headwind to US cigarette volumes," the analysts wrote.

That's a concern echoed by Citigroup analysts back in April, when they warned investors in traditional tobacco stocks like Philip Morris and Altria to be mindful of the extent to which the Juul would disrupt their traditionally strong performance.

"The US tobacco market is beginning to be disrupted by Juul," the Citigroup analysts wrote, adding, "We don't expect underlying cigarette trends to improve much in the rest of 2018."

A positive outlook for Juul despite growing safety concerns

Despite analysts' enthusiasm for Juul, the startup is facing several challenges on the public health front.

That includes emerging research questioning the health and safety of vaping and the uniquely addictive potential of the Juul, which packs twice the nicotine of comparable devices. Other issues include a Food and Drug Administration query into whether the company marketed its products to teens, as well as increasing demands from Congress members for the FDA to review the Juul's safety. Local initiatives like San Francisco's recent ban on flavored tobacco could put additional pressure on Juul, which has advertised sweet and fruity flavors as a key part of its appeal.

But analysts aren't too worried about Juul's future — at least not for the next five years.

That's largely because of a current FDA rule that exempts any e-cig sold since August 2016 from the agency's review until 2022. That means Juul should remain largely untouched by federal regulation for at least the next several years, the analysts wrote. Even then, once Juul sends in an application to the agency, they likely wouldn't respond until "sometime in 2023 at the earliest," they said.

"We believe the FDA's near-term options for constraining JUUL growth are limited," the analysts wrote.

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• Wall Street rejoiced this week on news that Dell would not pursue a "reverse merger" with VMware.
• In the words of Morgan Stanley, "Independence Day Comes Early" for VMware, since the potential reverse merger with Dell weighed heavily on its stock price.
• The reverse merger would have taken Dell public but decimated VMware's shareholder value, according to analysts. 
• VMware is up 9% on sustained excitement following an official announcement from Dell on Monday that it would return to the public markets through the purchase of a VMware tracking stock, DVMT. 

VMware investors are rallying. 

Shares for VMware, a cloud computing and virtualization company, are up 9% from the closing price Friday on news that its privately-owned parent company Dell won't pursue a so-called "reverse merger," which would have taken Dell public but could've decimated VMware's value for shareholders.

Morgan Stanley, one of Wall Street's toughest critics of the deal, raised its outlook on VMware on Tuesday in a note titled "Independence Day Comes Early." 

"With the bear case threat of a reverse merger with Dell effectively shelved, investor focus turns to fundamentals – and recent fundamentals have been strong," Morgan Stanley analyst Keith Weiss wrote. 

Morgan Stanley raised its price target for VMware from $150 to $175, citing high billings growth in the first quarter, and sustained earnings per share. 

Dell, which owns 81% of VMware, plans to take itself public through the buyout of a VMware tracking stock, DVMT. 

As part of the deal, VMware's board of directors announced an $11 billion special dividend to its shareholders, worth around $27 per share. Dell will use the cash it gets from the dividend to finance the tracking stock deal.

While VMware's 2019 revenue won't be impacted, the company did lower its guidance on earnings per share.

The company expects to see $5.99 in adjusted earnings per share for fiscal year 2019, down from the $6.14 anticipated before the dividend was announced.

The company also lowered its guidance on free cash flow to $3.32 billion, down $50 million from its earlier guidance of $3.27 billion for fiscal year 2019. 

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