Citi upgrades Morgan Stanley: ‘A high quality franchise with limited rates exposure’

Citi upgraded Morgan Stanley to buy on Friday and said if the Fed cuts rates as expected, that it will “spur capital markets activity.”

The firm also said it expects two rate cuts in 2019 and 2020 and raised its target price on the investment bank to $52 from $48.

“While 2Q19 is expected to be a difficult quarter, we think this is largely priced in with an implied cost of equity of 12.4%, and see it as an opportunity to increase exposure to a high quality franchise with limited rates exposure,” Citi analyst Keith Horowitz said.

“We see Morgan Stanley net income growth of 2-3% over the next two years by continuing to gain market share in both its institutional and retail franchises, which compares more favorably against the flat to slightly declining net income growth among the rest of the bank universe.”

Shares of Morgan Stanley are up 1.29% to $44.75 in premarket trading. The firm will report its second quarter earnings on July 18. The shares have underperformed the market the last three months, down 5% on concern lower rates will hurt profits for banks.