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Morgan Stanley Worth $23 as Trading Bounces Back

Written by: Trefis 04/25/12 - 1:56 PM EDT
Tickers in this article: MS
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Morgan Stanley (MS) handsomely beat analyst estimates for its first-quarter 2012 revenue figures, but ended up with a small loss for the quarter due to a $2 billion debt valuation adjustment charge.

Excluding this one-time accounting charge, the global investment bank generated a respectable $1.3 billion net income on nearly $9 billion in revenue for the quarter. The near-33% revenue growth (excluding DVA) compared to the previous quarter can be attributed primarily to its Institutional Securities business, consisting of sales and trading operations. Bank of America(BAC) also reported strong Q1 earnings on the back of improved trading figures.

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We have updated our price estimate for Morgan Stanley's stock from under $22 to $23 to factor in the marked improvement in its trading operation figures and other factors.

See our complete analysis for Morgan Stanley.

The Bank's Trading Calls Have Been Good

The weak performance by Morgan Stanley's investment banking operations over the latter half of 2011, due to extreme market volatility, brought revenue figures down for the bank in Q3 and Q4. The modest recovery in the capital markets -- particularly the debt markets -- has done a lot of good for the bank this time around, as it has been able to capitalize on that improvement.

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The fixed-income, currencies and commodities trading business contributed to well over a quarter of Morgan Stanley's total revenue (excluding DVA) for Q1 2012, adding $2.6 billion to the top line. This is about 34% more than the number a year ago.