It’s early days yet, but analysts following Goldman Sachs (GS) don’t seem overly concerned about the impact the SEC’s fraud charges against the company will have on the bottom line. Despite talks of a management shake up, analysts are still counting on Goldman’s ability as a long-term profit-maker.
According to FactSet the average analyst price target for Goldman is $210.76 a share, about a 32 percent upside from its current stock price. Price targets range from $180 to $244 and of the 25 analysts that cover the firm, 76 percent still rate the stock a “buy.” (MarketWatch)
FBR Capital Markets analyst Steve Stelmach maintained an “outperform” rating on Goldman’s stock with a price target of $190 on the firm’s strong fundamentals. However, Stelmach noted that uncertainty surrounding new financial regulation legislation could limit a rise in bank stocks and he removed Goldman from the “FBR Top Picks” list. (BusinessWeek)
Sanford C. Bernstein analyst Brad Hintz said although Goldman’s long-term outlook still seems “attractive”, the company could face a liability of up to $700 million. He estimates that the charges could cost Goldman a total of $706.5 million, or $1.20 per share, over the next few years. (CNNMoney) Hintz said the company’s equity could be reduced by 16-17%, but he remains bullish: “Goldman is the largest, most successful institutional trading firm on Wall Street. Given the firm’s public position that nothing has changed in its business strategy, the company has both the strength, global positioning and the will to deploy its resources and profit from slowly improving economic conditions.” (InvestmentNews)
Dan Freed of TheStreet.comthinks the selloff in Goldman’s stock is overdone. He said, “Gauging the damage a regulatory crackdown will do to any company is always an inexact science… Punishments meted out by securities regulators against big Wall Street firms have a long history of having little impact on the bottom lines of the companies involved.”
Rochdale Securities analyst Richard Bove said the stock is still worth buying and he said in a research note that the charges will not keep other companies from working with Goldman. Bove added the recent dip in stock price makes the investment bank “a compelling buy”, but that CEO Lloyd Blankfein or CFO David Viniar might have to leave the firm for public relations reasons. (AP)
24/7 Wall St’s Doug McIntyre doesn’t think Blankfein will be the one to go. He writes that Blankfein, who has been running the company since May 2006, has many allies on his board and he’s been able to take the company “through choppy waters relative unscathed”. McIntyre noted that the more likely candidate to be let go is Gary D. Cohn, President and COO of Goldman, who, according to press reports, was directly involved in overseeing mortgage trading operations.
If other countries follow the SEC’s lead, the impact on Goldman’s bottom line might be more significant. British and German officials may also look into whether they can take action against Wall Street’s golden boys. U.K.’s Financial Services Authority spokesman Leigh Calder said they are investigating “whether there are implications for the U.K. –regulated entities of Goldman Sachs” after Prime Minister Gordon Brown commented that the employees of the bank exhibited “moral bankruptcy”. (Bloomberg)
The Royal Bank of Scotland Group (RBS), which is majority owned by the British government, lost about $841 million from Goldman’s Abacus portfolio, and Germany’s IKB Deutsche Industriebank AG lost nearly all of its $150 million investment, according to the SEC lawsuit.
Goldman is scheduled to testify before the U.S. Senate’s Permanent Subcommittee on Investigations next week, and the firm releases quarterly earnings tomorrow. Analysts are sure have a lot more questions for Wall Street’s top player during Tuesday’s conference call and price target adjustments could come in the following weeks.
Sheena Lee
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