Monday, February 11, 2008

Merrill Lynch: Revenue opportunities could result in a $100+ share price - Citigroup

- Citigroup is out with a major positive call on Merrill Lynch (NYSE:MER) saying they think the co can double earnings power over the next couple of years. They anticipate that the franchise could earn in the $10b-$12b range (vs firm's 2008 forecast in the $5b range) by capitalizing on several billion-dollar revenue opportunities in each of its major businesses.

Firm's analysis deconstructing Merrill's ROE shows that the franchise could generate 20%+ ROEs over the cycle, which could result in a $100+ share price.

Wealth Management could add $6b of revenue over the next 5 years, comprised of $4b from the US franchise and $2b from growing the international franchise.

John Thain, Merrill's new CEO, is the catalyst to unlock the earnings power of the franchise which would then result in meaningful value creation. In Citi's view, Merrill will successfully execute on 1) creating a risk management infrastructure / culture that won't result in outsized losses, 2) execute on top line growth initiatives across the major businesses, 3) leverage the untapped earnings power inherent in Merrill's franchise by removing silos and building bridges across the wealth management and institutional businesses.

Reits Buy and $75 tgt.

Notablecalls: This is bound to generate substantial interest, given the overall negative sentiment in the financials. I suspect we have started climbing the "wall of worry" in many of these names.

All of these names have written down most of their CDO/subprime assets and aggressive writedowns may potentially lead to write-ups down the road. Call me an optimist but these write-ups could come as soon as over the next couple quarters. Imagine Merrill suddenly beating estimates by a mile. Wanna be short the name when this happens? Thought so.

Expect a nice upside move in MER stock today.


notablecalls said...

The news from AIG sure killed the mkt here.


Beanieville said...

How about the 3 solars you must own?