Deregulation and a global equity bull market will propel Morgan Stanley in the new year, according to Keefe, Bruyette & Woods, which specializes in coverage of the financial sector.

With major changes expected to the Federal Reserve's financial crisis banking regulations, Morgan Stanley should be set for a stock swell in the next 12 months, wrote KBW analyst Brian Kleinhanzl.

"We are expecting regulations will be eased for the largest banks beginning in earnest in 2018 and we expect Morgan Stanley will be one of the larger beneficiaries of regulatory change over time," wrote the analyst on Tuesday. "We expect changes to [the Fed's] Comprehensive Capital Analysis and Review (CCAR) will occur and the benefit will be improved returns over the long term."

While Morgan Stanley is already up more than 27 percent this year and 16 percent over the past three months, Kleinhanzl believes that the bank's stock will reach $59 by next December. That implies roughly 10 percent upside from Tuesday's close over the next 12 months.

Shares of Morgan Stanley closed down 1.24 percent Wednesday after the call.

The analyst added that continued global growth is likely to drive equity markets higher, buoyed by quantitative easing outside the United States and the possibility of Republican tax cuts.

"We believe that Morgan Stanley is more levered to equity markets than peers due to exposure to equities within Wealth and Investment Management and Morgan Stanley's leading equity trading franchise," explained Kleinhanzl. "Lastly, there is a high probability that tax reform could happen in 2017 or early 2018, and we expect that tax reform could be a further catalyst for markets should consumer and corporate cash flows improve."