Bernstein Issues Outperform Rating To Goldman Sachs

Bernstein Issues Outperform Rating To Goldman Sachs

 
Since the beginning of this year, the stock of investment banking giant Goldman Sachs Group, Inc. (NYSE: GS) has remained range bound between $240 and $270, despite the rising interest rate scenario in the US. The overall weakness seen in the US stock market and Trump’s trade war against China has mainly contributed to the range bound movement in the stock price. However, we are expecting a rally in the stock of Goldman Sachs to begin soon due to the recent favorable developments, which are discussed below. The stock of Goldman Sachs closed Wednesday’s trading session at $252.94.

Christian Bolu, an analyst at Bernstein has recommended buying Goldman Sachs because he believes that rising interest rates and rebounding revenue would enable Goldman Sachs to begin a new phase of exciting growth.

Furthermore, Bolu has pointed out that investment banking, management, and lending contributes a major share of total revenue. Previously, the bank was heavily dependent on trading revenue. The investment arm of Goldman Sachs generated $2.14 billion in 4Q17 and $7.37 billion in fiscal 2017. It is the second best performance of the investment banking arm. Bolu expects these fundamental changes to push the stock price of Goldman Sachs in the months ahead.

Understanding the changing global scenario and ever rising demand for investment banking related services, Goldman recently announced that David Solomon, who has an investment banking background, will succeed Lloyd Blankfein as President and Chief operating officer.

Bolu underlined the growing importance of the investment banking segment by saying “Fast growing ‘strategic growth’ businesses – Investment Banking, Investment Management and Lending – have overtaken Trading as the dominant driver of firm revenues.”

According to Bolu, the revamped management team, which is focused on growth, has formulated a noteworthy growth plan and is supported by Goldman’s expert financial engineering teams.

Based on these facts, Christian Bolu has initiated a coverage on Goldman Sachs, with an “outperform” rating. The analyst has also given a one year target price of $300 for the stock. So far, the stock has outperformed Dow Jones and S&P index.

To sum up Christian Bolu said “We believe the revenue recession that has plagued Goldman Sachs shares is at an inflection point. We see in the current cycle many of the ingredients (rising rates, benign credit conditions and deregulation) that drove institutional brokerage stocks to significantly outperform during the 2003 – 2006 cycle.”

In other news, a unit of Goldman Sachs received a major portion of the $90 million interest payment made by the Venezuela government for the bonds issued by PDVSA, the state-owned oil company.  Notably, the cash-strapped government had stopped servicing its debt months ago.

PDVSA had initiated the payment in December 2017. However, it was held in a clearing house on concerns of possible violation of the US sanctions. Goldman Sachs had negotiated a discount of over 50% for investing in the bonds. Opposition parties in Venezuela became furious as it was felt that the bond deal would further make it difficult for the country to import food products. The controversial securities were dubbed as “hunger bonds.” Based on the anticipated growth in investment banking business and an upward revision of target price by Bernstein analysts, fundamentally, the stock is expected to move upwards.

The stock has a very strong support at 245 levels. Furthermore, the Williams Percentage Range indicator is out of the bearish zone and has started moving upwards. Therefore, we are expecting the stock to move up in the short-term.

Goldman Sachs - Technical Analysis - 12th April 2018

In order to gain from the uptrend, we may invest in a call option. The option contract offered by a binary broker should be valid for a period of one week. Furthermore, the stock should be trading near $250 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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