Goldman Sachs (GS) is still a “Buy,” but Friday’s SEC suit does pose a threat to the share price, writes FBR Capital financial analyst Steve Stelmach in a note to clients this morning.
(Come to think of it, the SEC suit was already a huge overhang on Friday, but that’s neither here nor there!)
Stelmach reiterated an “Outperform” rating on the stock, and a $190 price target, and he writes that the reaction in the market seems to expect a bigger hit to profits than is likely. The 13% decline Friday implies a $2 billion hit pre-tax, writes Stelmach, whereas the investors in the Abacus CDO lost only about $1 billion, reportedly.
Nevertheless, he’s taking Goldman off FBR’s “Top Picks List,” writing that “Investors should not ignore the potential regulatory spiral that may follow the SEC’s recent actions,” writes Stelmach, “and the potential for a valuation overhang despite an otherwise strong operating environment.”
The most immediate threat is greater derivatives regulation, Stelmach observes, which would hit Goldman’s fixed-income, currencies and commodities, which accounted for 38% of revenue the last two years, and which has been a relative bright spot amidst the vicissitudes of equity trading and M&A for Goldman.
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