Analysts Will Date Morgan Stanley, But Bring Goldman Home to Mother

NEW YORK (TheStreet) -- Morgan Stanley (MS) got some long stares from Wall Street analysts following its fourth-quarter earnings, but it's still Goldman Sachs that gets the love.

Morgan Stanley execs laid out a strategic plan to improve returns for shareholders Friday, but analysts remain skeptical of the investment bank's ability to deliver in the near term.

The company, which reported solid earnings for the fourth quarter , said it could deliver a return on tangible equity in excess of 10%, through a combination of a higher contribution from its wealth management business, restructuring of fixed income business, lower expenses and returning more capital to investors.

The investment bank will purchase the remaining stake in the Morgan Stanley Smith Barney venture ahead of schedule and reduce expenses by $1.6 billion over two years in a flat-revenue environment, lower fixed income risk-weighted assets from $280 billion end of 2012 to $200 billion in 2016. CEO James Gorman also said the company will return excess capital "as soon as possible", once its completes the purchase of the remaining MSSB stake.

The detailed plan was well-received by Wall Street analysts, many of whom raised their estimates and target price for the stock.

Still, most analysts believe that the company faces challenges in achieving its target.

"While surely an improvement from the mid-single digit recent performance, MS' targets only meets its cost of capital, suggesting valuation near tangible book value in more than a year," Wells Fargo Securities analyst Matt Burnell wrote in a report. He added that lackluster performance of the institutional securities business in recent quarters suggests "revenue improvement is needed as much as capital efficiency to improve returns in the business."

Burnell believes "meaningful capital return" is at least 2 years away for Morgan Stanley shareholders.

Moreover, Goldman Sachs is a better bet according to the analyst."We note that rival GS currently earns its cost of capital and offers meaningfully higher capital returns and yields with less volatility."

Barclays Capital analyst Roger Freeman expects Morgan Stanley to deliver return on equity of 6.7% in 2013 and 7.6% in 2014 and believes the stock will still be valued at a discount to tangible book in the near term, as its ROE is still below its cost of capital. Delivering returns on equity above 10% would be highly dependent on profitable market conditions, he noted.

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