Analyst says Morgan Stanley poised for success

NEW YORK - Shares of Morgan Stanley rose Tuesday afternoon along with a jump in the broader market and as an analyst said the bank is building itself to become very successful when the economy improves.

Morgan Stanley shares rose 84 cents, or 4.7 percent, to $18.84 in early afternoon trading. Shares have traded between $6.71 and $58.10 during the past year.

The broader market rose Tuesday as well, with the Dow Jones industrials average rising 3 percent to 9,600.75 at midday. The Standard & Poor's 500 index gained more than 3 percent to 1,001.98 as investors look past the uncertainty of Tuesday's presidential election.

Ladenburg Thalmann analyst Richard Bove wrote in a research note that Morgan Stanley is building positive momentum despite the ongoing credit crisis and recent problems for investment banks that have led to Lehman Brothers Holdings Inc. filing for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. in September.

After the Lehman collapse and Merrill sale, investors worried that the independent investment bank model may no longer be viable. Morgan Stanley quickly received approval to change to a bank holding company, which allows it to grow a large deposit base and have permanent access to borrow money from the Federal Reserve.

Bove said that Morgan Stanley's large retail brokerage sales force already in place gives it the opportunity to rapidly grow its deposit base, which will provide stable funding amid a volatile period.

"When the markets allow it is likely to be a very successful company," Bove wrote in the note.

Despite the positive changes, as an investment bank, Morgan Stanley still faces challenges in the current environment as its prime brokerage and private equity business have fallen, Bove said.

Bove increased his fiscal 2008 earnings estimate to $4.11 per share from $4.06 per share and his 2009 estimate to $2.25 per share from $2.18 per share, but both are still below average estimates. Morgan Stanley's fiscal year ends Nov. 30.

Analysts polled by Thomson Reuters, on average, forecast earnings of $4.28 per share for 2008 and $3.63 per share for 2009.

Bove rates Morgan Stanley "Neutral."

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