Morgan Stanley: Stock is Too Cheap to Ignore, Says Collins Stewart

Morgan Stanley’s (MS) shares are sliding today, and were recently down 4.6%. The financial firm has been hit worse than most of its peers because of its perceived exposure to Europe, despite management’s best efforts to convince investors that the company’s risk is small.

But Morgan Stanley just got a new vote of confidence.

“We believe the share price now discounts greater risks than are implied by our revised forecasts and by the likely policy response to the EU sovereign turmoil,” wrote Collins Stewart analyst Matthew Czepliewicz in a note upgrading the shares to Buy from Hold.

Czepliewicz expects European leaders to find a way to keep the EU together, and he expects Morgan Stanley to begin posting less volatile earnings next year.

“Against a backdrop of what currently appear to be starkly binary outcomes in Europe, we emphasise up-front our premise that EU policy-makers will, eventually, craft a response that prevents a disorderly reconfiguration of the Euro-bloc. At company level, the recent high volatility of MS�s quarterly core earnings should begin to subside in 2012e even if that of reported earnings remains high, as we expect for much of the sector.”