Alacra Pulse Prognosis: Goldman Sachs, Inc. Price Targets
Goldman Sachs (GS) has become a lightning rod for opinions on the role of Wall Street in the financial crisis, ranging from a “giant bloodsucking squid” to a benevolent “best in class” institution “doing God’s work.” The firm raises similarly strong feelings among analysts, notably the voluble Dick Bove of Rochdale Securities who took a swing at the equally media-savvy Meredith Whitney for missing the boat on Goldman’s recent troubles.
Whitney cut her second-quarter earnings estimate on Goldman to $1.70 a share from the previous $4.75 a share, “due to a heinous trading environment” and “lower than anticipated investment-banking activity.” The second quarter “was the worst quarter for debt and equity underwriting volume in over a year as volatility spiked, and global equity indices recorded the steepest quarterly declines since” the fourth quarter 2008, she wrote in a July 7 note.
Bove said Thursday that he whacked Goldman long before Whitney did, Joe Bel Bruno notes at Deal Journal. “For the record, the Rochdale Securities analyst cut his second-quarter earnings estimate for Goldman on April 26—and again on June 24. It’s now a slim $1.93 per share. In last year’s second quarter, Goldman had net earnings of $3.44 billion, or $4.93 a share.”
Bove told Deal Journal that he doesn’t “want to say anything negative about Meredith Whitney at all, she’s a very bright woman, she made a call I would have given my eye teeth for that Citi was going to cut its dividend.” But, “a fact is a fact, anybody that didn’t realize Goldman Sachs is going to earn less than $2 this quarter surprises me.
At least they agree on one thing: Whitney has a 12-month price target for Goldman of $186, close to Bove’s $182.
A number of other analysts tracked by Alacra Pulse have lowered their price targets in recent months, based on Goldman’s specific problems and the negative impact of financial reform legislation. Most bearish is Standard & Poor’s Equity Research analyst Matthew Albrecht who put a “sell” rating on Goldman in May and reduced his price target to $140 from $180. “Because of the uncertainty surrounding the suit and potential new regulations, we no longer think the shares deserve the premium multiple they have historically traded at relative to peers,” he wrote.
Last month, Barclays Capital analyst Roger Freeman warned that wider credit spreads, declines in structured finance indexes, sharply higher volatility and a “flight-to-safety” trade in less-risky assets could weigh on Goldman’s second-quarter earnings, which will be reported on July 20. Freeman had cut his price target on the investment bank to $175 from $195. Bank of America Merrill Lynch analyst Guy Moszkowski has a target of $160.
On a more positive note, JP Morgan’s Kian Abouhossein this week boosted Goldman to “overweight” from “neutral,” citing its strong Tier 1 capital levels and noting its “best in class” market risk-weighted-assets, following the proposed new Basel rules. JP Morgan kept Goldman’s 12-month price target at $175.
Howard Chen, an analyst at Credit Suisse, expects revenues from operations in fixed income, currency and commodities at Goldman Sachs and to have fallen more than 30 per cent from the first three months of the year. Chen had earlier lowered his price target for Goldman to $225 from $235 but still is the highest of analysts tracked, ahead of Deutsche Bank’s Michael Carrier who on June 7 cut his target to $205 from $220.
The median price target of analysts tracked by Thomson/First Call is $196. Goldman closed today at $138.06.
The following graphic is based on a search on Alacra Pulse. Click the image to enlarge.
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