Tuesday, March 14, 2006

Goldman Smashes Estimates

Talk about a blowout quarter.

Investment banking leviathan Goldman Sachs (GS) reported on Tuesday that it rang in the highest quarterly profit ever on Wall Street. Shares surged more than 5% after net income rose 64%; Goldman's business units all expanded revenue by more by more than 50% from year-ago levels.

Goldman is clearly learning how to leverage its balance sheet as it pursues new strategies. On the M&A side, announced deal flow so far this year has totaled about $678 billion globally -- that's nearly 30% above the $522 billion in deals announced for the same period last year.

We're simply awestruck, even though back on December 30th, we said Goldman under $150 was a gift:
Goldman at these levels is a travesty. Goldman is still trading at a below-industry multiple and continues to underwrite new issues for America's hottest companies. Goldman's footprints are in every solid financial service space conceivable. We hope the Street wakes up and realizes that Goldman is on sale here at these levels. Could GS be worth 20 X earnings and at least 3 X book? We think so. At that point, GS will be valued where it was when it went public in 1999. The writing is on the wall -- experts are predicting that deal flow and M&A in 2006 will break out like wildfire. Goldman's a $150 stock in 2006. Easily.
Our Goldman price target has been raised to $166. We view Goldman's management, operating leverage, and strong client relationship base as formidable competitive advantages. Did we mention that Goldman likes to ravenously buy back its own stock?

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