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Morgan Stanley's Global Oil Unit Sale Applauded by Analysts

NEW YORK (TheStreet) -- Analysts' reaction to Morgan Stanley's (MS) deal to sell its Global Oil Merchanting unit to Rosneft of Russia won't have a material affect on the company's earnings, but it could lower the company's risk profile.

The terms of the deal -- announced late on Friday -- were undisclosed.  The sales includes "a dispersed international network of oil terminal storage agreements; inventory; physical oil purchase, sale and supply agreements; equity investments; and freight shipping contracts," Morgan Stanley said, adding that about 100 employees, "or one-third of Morgan Stanley's total commodities front-office personnel, will move to Rosneft Group.

Morgan Stanley said it is exploring "strategic options" for its oil storage, marketing and transportation business within the U.S.

According to Wells Fargo analyst Matthew Burnell, the business being sold "generates $100-150MM in annual revenue (or 0.3-0.5% of estimated 2014E net revenue of $33.1B)." 

But Burnell in a note to clients late Friday wrote that "the sale is a positive," because it represents "another move in the direction of reducing risk-weighted assets in MS' fixed income businesses due to the typically higher risk-weightings assigned to commodities assets."

The sale also reduces exposure "to a business that is susceptible to potential natural or man-made disasters and greater regulatory scrutiny," Burnell added.

Burnell rates Morgan Stanley "market perform."

Credit Suisse analyst Christian Bolu also has a neutral rating on Morgan Stanley, and in a note to clients late Friday wrote that the sal of the  of the Global Oil Merchanting unit would provide a modest boost to return on equity, but more importantly affirmed Morgan Stanley's "aim to focus its strategy on the core client franchise, rationalize lower return businesses and [remove] some tail risks associated with the physical storage business."

Bolu's price target for Morgan Stanley's shares is $28.00.

Morgan Stanley's shares have returned a whopping 63% this year, through Friday's close at $30.93. The shares trade for 1.2 times their reported Sept. 30 tangible book value of $26.96, for 12.2 times the consensus 2014 earnings estimate of $2.52 a share, among analysts polled by Thomson Reuters, and for 10.5 times the consensus 2015 EPS estimate of $2.96.

Please see TheStreet's earnings coverage for Antoine Gara's detailed discussion of the boost to Morgan Stanley's bottom line brought about by the company's assumption of 100% ownership of its former retail brokerage joint venture with Citigroup C.

Morgan Stanley's shares were up 0.6% in late midday trading Monday, to $31.12.

The following chart shows the performance of Morgan Stanley's stock this year, against the KBW Bank Index (I:BKX) and the S&P 500 :

MS Chart
MS data by YCharts



Interested in more on Morgan Stanley? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.



>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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