Analysts and investors have been scratching their heads about Merrill Lynch & Co.'s near-term prospects.

Two weeks ago, the company released fourth-quarter earnings that beat analysts' expectations but disappointed investors. Many analysts cut estimates, maintained "hold" ratings or recommended a Merrill rival: Morgan Stanley Dean Witter.

Stockholders were dissatisfied because other brokerages had upbeat earnings surprises, said brokerage analyst Sallie L. Krawcheck of Sanford C. Bernstein & Co.

"There is more uncertainty regarding Merrill today than there ever has been in its history," said Ms. Krawcheck, who gives the firm a "market perform" rating. "I'm not recommending the stock."

The spread in analysts' estimates is the widest it has been in the last 15 years, Ms. Krawcheck wrote in a report last week. "This is the result of the fierce debate now raging within the investment community on the company's earnings sustainability," she noted.

That debate has been reflected in the stock's performance. Though Merrill Lynch has rebounded from its 52-week low share price of $37.75, on Oct. 7, it has continued to languish behind its peers.

In the last two weeks, Merrill's stock fell 4.69%. During the same period, Morgan Stanley Dean Witter fell 1.29%, and PaineWebber Inc. was off 0.8%.

The problem with Merrill goes beyond its fourth-quarter earnings, said brokerage analyst Dean Eberling of Putnam, Lovell, de Guardiola & Thornton Inc.

Eighteen months ago, Merrill was at the peak of its performance, Mr. Eberling said. At the time, he said, "having global reach was like getting the Holy Grail."

Since then, volatility overseas has turned Merrill's global reach into a negative, Mr. Eberling said. "Investors don't know if the cost cutting, such as the reduction in staff, done during the fourth quarter will be enough to sustain earnings in 1999," he said.

Merrill is also in the "digestive" stage now, Mr. Eberling said. In the last two years, Merrill acquired Mercury Asset Management, Midland Walwyn, a Canadian broker-dealer, and assumed control of Yamaichi Securities in Japan.

The deals could put "pressure on its operating margins and could pinch near-term earnings growth over the next six to 18 months," Mr. Eberling said. "People have gotten a lot more skeptical."

Nine months ago, Morgan Stanley - a major competitor-was trading at a discount to Merrill. Now Merrill trades at a discount to Morgan Stanley.

Still, some analysts recommend the stock, saying the company is poised for a rebound.

Guy Moszkowski, brokerage analyst at Salomon Smith Barney, acknowledged that Merrill's troubles in the capital markets last year tarnished its name. However, he believes the company is poised for one of its largest comebacks.

"The company did poorly with equity and debt underwriting during the third and fourth quarter," Mr. Moszkowski said.

"But here's the news: Those areas started to come back pretty strongly in November, and you could not see the impact fully, because earnings were masked by the writedowns."

Mr. Moszkowski upgraded the stock to a "buy" rating, from a "hold," because of its deep discount to the market and solid earnings momentum. He raised his target price to $105, from $96.

Merrill Lynch is already beginning to realize savings from its cost- cutting efforts, which may not be sustainable, "but is good emergency management," Mr. Moszkowski said.

"Morgan Stanley may be the safer stock, but Merrill Lynch offers the most upside."

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