Buckingham Research Downgrades Merrill Lynch (MER) to Neutral, Sees More Upside in Morgan Stanley (MS)

June 24, 2008 1:33 PM EDT

Buckingham Research downgrades Merrill Lynch (NYSE: MER) from Strong Buy to Neutral.

Buckingham analyst says, "The issues surrounding MER’s sizable CDO/bond insurer exposures have remained more intractable than we had initially anticipated, with continued hits to book value and potential further capital raising eating away at the upside in the stock in our view. Moreover, at 1.5x our 2Q08E book value, the stock trades well above peers such as Morgan Stanley (NYSE: MS) and Lehman Bros. (NYSE: LEH) and above its 10-year low of 1.2x (while peers trade at or below 10-year lows)...While we are cognizant of having been wrong on the stock, looking forward, we believe it is more appropriate to move to the sidelines given the outsized risks. We still see value in a sum-of-the-parts analysis given MER’s strong wealth mgmt. platform, but we simply believe the risk/reward in MER shares is not nearly as attractive as peers like MS, LEH, and Goldman Sachs (NYSE: GS). In fact, we see substantially more upside in MS given similar exposure to wealth mgmt. (35% of revs), much more limited exposure to CDOs/monolines, and a more attractive valuation (less than 1.3x book)."

Merrill Lynch & Co., Inc. together with its subsidiaries, provide investment, financing, insurance, and related services to individuals and institutions on a global basis through its broker, dealer, banking, and other financial services subsidiaries.

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Related Entities

• Goldman Sachs
• Morgan Stanley
• Merrill Lynch
• Lehman Brothers

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