Morgan Stanley (NYSE:MS) has been upgraded to ‘buy’ by Deutsche Bank AG (NYSE:DB) (ETR:DBK) research team and set a target price of $30.
The Germany based Deutsche Bank AG (NYSE:DB) (ETR:DBK) in its markets research report upgraded the investment bank Morgan Stanley (NYSE:MS) to ‘buy’ from its earlier ‘hold’ recommendation.
Morgan Stanley would benefit as its leverages
Deutsche Bank AG (NYSE:DB) (ETR:DBK) analysts feel Morgan Stanley (NYSE:MS) would benefit as it leverages to rising equity markets and interest rates.
Matt O’Connor and team feel Morgan Stanley (NYSE:MS) trades at a modest discount to tangible book despite posting 31 percent YTD gain.
The research report observes that Morgan Stanley (NYSE:MS) would post enhanced EPS thanks to a rise in equity markets, the expected buy-in of the remaining joint venture stake and less drag from its FICC division.
Deutsche Bank AG (NYSE:DB) (ETR:DBK) team feels Morgan Stanley (NYSE:MS) has a lot of leverage to rising rates, which is not factored in its current share price.
Matt O’Connor and team feel Morgan Stanley (NYSE:MS) has good upside potential on the returns front, despite delivering on its mid-teens return target during the past two quarters.
The research team justifies its view on enhanced return as Morgan Stanley (NYSE:MS) is expected to complete its buy-in of the remaining 35 percent wealth management joint venture with Citi sooner than later. The investment bank expects to post $400 million earnings from the proposed joint venture aided by greater order flow capture, elimination of certain expenses besides a partial benefit from pickup in deposits.
Deutsche Bank AG (NYSE:DB) (ETR:DBK) also feels the rising equity markets should boost Morgan Stanley’s (NYSE: MS) wealth management revenues, as it feels about $0.10 of annual EPS lift would accrue if the market maintains current levels. The investment bank’s annual EPS would also gain by about $0.20 when interest rates move by 100 bps.
Deutsche Bank AG (NYSE:DB) (ETR:DBK)’s research team also observes Morgan’s (NYSE: MS) Fixed Income, Currencies and Commodities division (FICC) revenues during the first quarter of 2013 at $1.6 billion (ex DVA) were less than anticipated. However the research team anticipates the second quarter trends making a rebound on the back of generally favorable macros. The trend is expected to alleviate some concerns surrounding FICC.
Matt O’Connor and team however expects Morgan Stanley (NYSE:MS)’s FICC division won’t contribute to growth of its EPS and thereby its stock price.
The following table depicts the EPS and P/E projections of Deutsche Bank AG (NYSE:DB) (ETR:DBK)’s research team for Morgan Stanley (NYSE: MS):
The research team estimates Morgan Stanley’s (NYSE: MS) EPS to grow by 7 percent to reach $3.10 in 2015 from $1.65 posted during end of 2012.
