Market News

 July 15, 2009
Analysts raise earnings view on Goldman Sachs

 Several brokerages, including J.P. Morgan Securities, raised their full-year earnings outlook on Goldman Sachs Group (GS.N) on Wednesday, a day after the Wall Street bank posted stellar second-quarter earnings on blowout trading results, trouncing analysts' estimates.

Goldman has the strongest and cleanest capital position in terms of Tier I and leverage ratio in the peer group, along with one of the strongest fixed income franchises globally, said JP Morgan analysts Kenneth Worthington and Kian Abouhossein.

On Tuesday, Goldman Sachs posted a 33 percent rise in quarterly earnings and said it set aside $6.65 billion for salary, bonuses and benefits in the quarter, up by nearly 50 percent from the quarter ended May last year. [nN14289399]

Veteran analyst Richard Bove of Rochdale Securities said Goldman may be in a new sustainable uptrend by the fourth quarter of this year. Analysts' latest full-year earnings forecasts for Goldman range between $14.68 and $17.51 per share, compared with prior range of $11.39 and $14.95.

Citigroup analyst Keith Horowitz said while Goldman's second quarter results were strong, they raised the question where future growth will come from.

It seems clear that core FICC (fixed income, currencies and commodities) results and equity trading are not sustainable, Horowitz said.

Goldman, Wall Street's leading investment bank, said the FICC side of its business generated $6.8 billion to help make the quarter ended June 26 its best ever with total revenues of $13.8 billion.

Activity levels are likely to slow a bit, said Fox-Pitt Kelton analyst David Trone and forecast FICC revenue to decline 46 percent to $8.4 billion in the second half of the year from first half levels.
"We expect earnings will come down sequentially and remain below the level seen in the second quarter through all of 2010," FBR Capital Markets analyst Steve Stelmach said.

But Stelmach kept his "outperform" rating on the stock.


Barclays Capital analyst Roger Freeman said he did not expect a substantial stock buyback by the firm in the third or fourth quarter.

In June, Citigroup's Keith Horowitz had forecast Goldman to start a buyback program in the next couple of quarters, which could act as a potential catalyst for the stock.

Barclays' Freeman also said it would likely be well into next year before Goldman was in a position to return any significant capital to shareholders.

Goldman repaid $10 billion in TARP loans in the second quarter, while raising $8.9 billion in equity, debt and asset sales to win its way out of the government program. [nN10516725]

Goldman Sachs shares rose as much as 1.7 percent to $152.16 in trading before the bell. They closed at $149.66 Tuesday on the New York Stock Exchange.