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Morgan Stanley (NYSE:MS) shares gapped up 2.2% in Wednesday morning trading after Odeon Capital Group upgraded the stock as an inflection in investment banking activity is poised to drive up the firm’s earnings.
“Since the beginning of June, the investment banking business has recovered sharply,” analyst Richard Bove wrote in a note, adding that Morgan Stanley (MS) had not cut ties with the investment banking sector and was assimilating acquisition costs.
Bove pointed out that “managements have increased in confidence that a stiff recession may not be ahead of us. This suggests a strong M&A market for a period. Additionally, new equity offerings are proliferating.”
MS “knows how to grow in an environment like this. Thus, earnings could be better than expected.”
Still, the failure to name a successor to CEO James Gorman remains a “bad management practice,” Bove warned.
Bove’s Buy rating diverges from the SA Quant system rating of Hold, and aligns with the average SA analyst rating and the average sell-side analyst rating, both at Buy.