Merrill Lynch downgraded Morgan Stanley (MWD ) to neutral from buy, and cut the broker dealer/money center bank segment to market weight.
Analyst Judah Kraushaar says his downgrades of Morgan Stanley and the broker dealer/money center bank segment are tied to valuation. He notes the median stock in the segment has appreciated 45% off its lows, well above the 22% rise for the S&P 500.
Meanwhile, Kraushaar says fourth quarter earnings per share will likely remain lackluster at best, although he still thinks the group could be poised for a gradual rebuilding of earnings power in 2002 to 2004. Against this backdrop, he thinks Goldman Sachs, JP Morgan and Morgan Stanley appear fairly valued, while "decent valuation appeal" remains for Citigroup, Bank of America and Lehman Brothers.