Morgan Stanley
Sherlyn Lim
RCPM
16th March 2006
Outline
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History
Macro Review
Business
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Company Life Cycle
Swot Analysis
Industry Comparison
Financial Projection
Sensitivity Analysis
Recommendation
History
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Morgan Stanley
1933 – Glass Steagall forces JP Morgan & Co. to chose
between commercial and investment banking business
 1935 – Henry S. Morgan and Harold Stanley leave
JP Morgan & Co. to form Morgan Stanley and Co.
 1941 – Joins New York Stock Exchange and enters
brokerage business
 1986 – Morgan Stanley Group becomes a publicly listed
company
 1997 – Merger of Morgan Stanley and Dean Witter
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History
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Dean Witter
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1924 – Opens first office in San Francisco
1950s – Expands through acquisition and mergers
1972 – Goes public
1978 – Mergers with Reynolds & Co. in largest industry
merger to date
1981 – Joins Sears, Roebuck
1987 – Launches Discover
1993 – Sears Spins of Dean Witter Discover
1997 – Merger with Morgan Stanley
Holdings
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400 Shares
Bot: 11th April 2001
Paid : $57.1898
Total: $23,516.00
% of portfolio: 8.3157%
Current Price: $60.31
Gain: 5.46%
Business
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Institutional Securities

Investment banking
Financial advisory services
 Merger and Acquisitions, Restructuring advice
 Sales and trading
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Fixed income securities
 Equity securities
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Business
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Retail Brokerage
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Individuals , Small to medium size business
Brokerage and investment advisory services
 Financial and wealth planning
 Annuity and insurance products
 Credit and other lending products
 Banking and cash management
 Retirement plan services
 Trust services
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Business
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Asset Management
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Global asset management product and services
Equity,
 Fixed income
 Alternatives
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Business
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Discover
Discover branded cards
 Other consumer finance products and services
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Key Statistics
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Fiscal Year Ends : 30 Nov
Management Effectiveness:
Return on Assets (ttm) : 0.63%
 Return on Equity (ttm) : 17.21%
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Profitability:
Profit Margin (ttm) : 18.44%
 Operating Margin (ttm) : 33.16%
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Macroeconomic Cycle
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Performance is cyclical and dependent upon
economy
Macroeconomic Cycle
Company Life Cycle
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Continuous reinvention
1986:
Morgan Stanley Group
becomes publicly listed
1987:
Dean Witter launches
Discover nationally
1924:
Dean Witter
opens office in
San Francisco
1935:
Formation of
Morgan Stanley
1997: Merger of
Morgan Stanley and
Dean Witter
2004-2005:
Falling stock
price,
attributed to
market and
management
2005-2006:
Management
shakeup; new
business model
SWOT Analysis
Strengths
- Leader in investment banking services
- Large market share in many areas of
investment banking
- Good Reputation in the market
- Ability to continuously reinvent itself
Weaknesses
- Uncertainty about management
- Cyclical nature of business
- High human capital turnover;
investment banking business is highly
dependant on individuals
- Discover is considered out of line with
the general business model; not an
expertise
Opportunities
- Emerging markets; enhancing presence
in South Korea and Russia by obtaining
bank licenses
- Shift of focus towards growth rather
than margins in Asset management
- Employment of company’s equity capital
in investment ideas; increasing returns to
the firm
Threats
- High competition in the market; market
is dominated by few bulge brackets
- Inability to compete in foreign markets;
lost dominance in the Chinese market
- Reputation can be damaged by unethical
individuals
Chart Comparison
Direct Comparison
MS
Pvt1
GS
MER
INDUSTRY
Market Cap:
63.24B
N/A
65.15B
74.56B
10.24B
Employees:
53,218
400,001
31,005
54,800
1.32K
Qtrly Rev Growth (yoy):
28.40%
N/A
38.20%
N/A
31.70%
Revenue (ttm):
26.78B
23.07B1
25.24B
-562.00M
798.93M
Gross Margin (ttm):
92.10%
N/A
91.06%
N/A
83.91%
N/A
N/A
N/A
N/A
210.37M
33.16%
N/A
33.07%
3189.86%
35.84%
Net Income (ttm):
5.19B
-1.44B1
5.61B
5.05B
48.74M
EPS (ttm):
4.573
N/A
11.214
5.163
0.83
P/E (ttm):
13.13
N/A
13.32
15.27
22.81
PEG (5 yr expected):
0.95
N/A
0.84
1.08
1.23
P/S (ttm):
2.36
N/A
2.58
N/A
3.73
EBITDA (ttm):
Oper Margins (ttm):
Multiple Phase DDM

Three Phases
2006 – 2010 --- Based on earnings forecast
 2011- 2020 --- Based on dividend growth
 2021 – 2020 --- Based on dividend growth
 Terminal Value
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Forecasted Price : $61.76
Sensitivity Analysis
Multi Phase Dividend Discount Model
Terminal Payout
ratio
Dividend Growth (2011-2020)
Dividend Growth (2021-2030)
Terminal
Value
Share Price
30.00%
15.67%
13.00%
6.00%
$38.99
40.00%
15.67%
13.00%
6.00%
$50.38
50.00%
15.67%
13.00%
6.00%
$61.76
60.00%
15.67%
13.00%
6.00%
$73.15
70.00%
15.67%
13.00%
6.00%
$84.54
50.00%
15.67%
10.00%
6.00%
$55.21
50.00%
15.67%
11.00%
6.00%
$57.22
50.00%
15.67%
12.00%
6.00%
$59.38
50.00%
12.00%
13.00%
6.00%
$48.89
50.00%
13.00%
13.00%
6.00%
$52.05
50.00%
14.00%
13.00%
6.00%
$55.45
50.00%
16.00%
13.00%
6.00%
$63.02
50.00%
17.00%
13.00%
6.00%
$67.24
50.00%
18.00%
13.00%
6.00%
$71.76
P/E Approach
P/E
Year
2006
2007
2008
2009
2010
Basic EPS
4.95
5.49
5.96
6.40
6.85
Morgan Stanley
13.04
Diluted EPS
4.81
5.33
5.80
6.22
6.66
Merrill Lynch
15.26
Goldman Sachs
13.29
JP Morgan
17.21
Sector
15.33
Industry
22.81
Share Price
Year
2006
2007
2008
2009
2010
P/E ratio
13.04
62.72
69.56
75.60
81.10
86.84
15.26
73.40
81.41
88.47
94.90
101.63
13.29
63.93
70.90
77.05
82.65
88.51
17.21
82.78
91.81
99.77
107.03
114.62
15.33
73.74
81.78
88.87
95.34
102.09
22.81
109.72
121.68
132.24
141.85
151.91
Share Price: $62.72
Recommendation
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Company has been able to reinvent itself over
its history
It is one of the premier banks in the world
Buy recommendation would be have been made
% of financials in portfolio = 21.2%
% of financials in S&P 500 = 21%

Hold: 400 Shares