The analyst also sees "meaningful leverage to rising interest rates," for Morgan Stanley, writing that "a 100bp move in rates would boost annual EPS by about $0.20." The Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since later 2008. Since September, the central bank has been making monthly purchases of $85 billion in long-term securities in an effort to hold long-term rates down. The Federal Open Market Committee has repeatedly said it was likely to leave the federal funds rate in its current range at least until the U.S. unemployment rate moves below 6.5%. But top FOMC and Federal Reserve officials have given conflicting statements recently about the timing of a curtailment of the Fed's bond-buying. The market always anticipates monetary policy changes, and the recent rise in market rates on 10-year U.S Treasury bonds could signal a policy change in the near term. The market rate for 10-year U.S. paper was 2.13% on Thursday, increasing from 1.70% a month earlier.
O'Connor's price target for Morgan Stanley's shares is $30.00. Morgan Stanley's shares closed at $25.82 Thursday, returning 36% this year, following a 28% return during 2012. The shares trade at a slight discount to tangible book value when including the entire wealth management joint venture, according to O'Connor. The shares trade for 10.2 times the consensus 2014 earnings estimate of $2.54 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.08. O'Connor estimates Morgan Stanley will earn 2.19 a share this year, with EPS climbing to $2.70 in 2014 and $3.10 in 2015. MS data by YCharts
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-- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn