Analyst: Goldman Sachs Could Have a Lot of Room to Run

Stock Market


Goldman Sachs (NYSE:GS) stock has been on a tear. Shares are up nearly 34 percent this year to date, edging ahead of the Financial Select Sector SPDR (NYSEARCA:XLF), up 33 percent, and the broader S&P 500, up 26 percent, over the same period. Shares closed Monday at $175.74, above the mean analyst price target of $169.96 and just shy of the media price target of $177.

If you ask Stanford C. Bernstein & Co. analyst Brad Hintz, though, the stock could — operative word: could — be worth a lot more. In a “utopian scenario,” Hintz said in a report seen by Bloomberg, shares of Goldman Sachs could climb as high as $239, a 36 percent upside on Monday’s closing price.

What it would take for Goldman to hit $239 “would require a nirvana-like environment,” Hintz wrote, but the it’s the spirit of his argument and not necessarily the price target that is relevant to most investors. The year is about to roll over, and the 2013 equity rally is expected to lose some of its steam. Investors, as always, are looking for companies and stocks that will outperform in the coming year. If Hintz’s analysis is grounded in reality, then at minimum, it is a bullish argument for the bank.

Hintz argues that 2014 will be a strong revenue year for the investment-banking industry, but the current mean analyst revenue estimate for the bank doesn’t show much growth. Current-year revenues are expected to fall around $34.46 billion, up 0.9 percent on the year. Next year’s revenues are expected to increase just a fraction, one-tenth of a percent, to $34.9 billion.

It is, of course, possible that analyst projections are off base, but the estimates can still be a useful benchmark. Net revenues in Goldman’s Investment Banking division were flat on the year at $1.17 billion and down 25 percent sequentially. At $423 million, financial advisory revenues were down 17 percent on the year, with much of the decline “reflecting a decrease in industry-wide completed mergers and acquisitions,” according to the earnings press release.

Goldman’s underwriting business revenues increased 13 percent on the year, reflecting “significantly higher net revenues in equity underwriting, primarily due to higher net revenues from initial public offerings,” but IPO revenue is hard to forecast.

A good sign, though, is that Goldman Sachs did report that its investment banking transaction backlog was up significantly compared to the second quarter, which suggests that year-end and possibly early 2014 revenues could be strong.