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Richard Bove's Sell Rating on Goldman Sachs

Richard Bove's Sell Rating on Goldman Sachs

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Published by DealBook

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Categories:Business/Law, Finance
Published by: DealBook on May 12, 2011
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05/27/2011

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Thursday, May 12, 2011
© 2011 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT THE END OF THIS REPORT.
Goldman Sachs (GS)
Sell
Richard X. Bove
813.909.1111
 
rbove@rochdalesecurities.com
Highlights
The rating on Goldman Sachs stock is being lowered to Sell fromNeutral. The price target is being cut to $120 per share from$163 per share.It now appears that the pressure on the Justice Department tobring a criminal lawsuit against Goldman is building to a highpitch. The new Matt Taibbi article in
Rolling Stone Magazine
isanother all-out attack on the company. However, this time theattack is backed by a 650 page Senate report signed by both aDemocrat and a Republican.It is clear to outsiders that there must be a major restructuring of the company at the Board and executive suite levels or Congresswill not be satisfied. The company continues to fight such achange.Thus, the best investors can hope for is continued in-fightingbetween the government and the company. This does not workfor shareholders.It is likely that the stock will slip to a price near book value whilethis conflict unfolds. As was pointed out to me should this stockrise in price, the government will renew its efforts to bring thecompany down.This is not a good investment. The stock should be sold. Whenthe government/company conflict is resolved, then one canreview what the structure of Goldman is and rethink re-instituting positions.
Note: The tables in this report have been prepared by Rochdale Securities from sources believedto be accurate. However, accuracy cannot be guaranteed.
 
2010 2011 2012 2013Mar $5.59 $1.56 $4.49 $4.90Jun $0.78 $4.02 $4.64 $5.04Sep $2.98 $3.87 $4.39 $4.95Dec $3.79 $4.21 $4.55 $5.11Year $13.18 $13.66 $18.07 $19.99Previous $13.18 $13.66 $18.07 $19.99Consensus $13.18 $14.87 $19.16 $21.41P/E Multiple 11.2x 10.8x 8.2x 7.4x
SYM/EXCH Current
 
Previous
 
Rating Sell NeutralTarget Price $120.00 $163.00 Normalized Earnings $21.30 $21.30
Stock Data (03/11)
 
Current Price $147.8852 Week Low/High $129.50 $175.34Est. 2011 Rev Per Share/P:RPS $73.85 2.00xEst. 2011 EPS/PE $13.66 10.8xBook Value/Price:Book $118.99 1.24xTangible BV/Price:TBV $110.00 1.34xDividend/Yield $1.40 1.0%Shares Out/Mkt. Cap (mil) 583 $86,214
Income Statement (mil)/ Percent of Revenue (03/11)
 
Investment Banking $1,269 10.7%Principal Transactions $2,612 22.0%Market Making $4,462 37.5%Commissions & Fees $1,019 8.6%Investment Management $1,174 9.9% Net Interest Income $1,358 11.4%Operating Revenues $11,894 100.0%Personnel Costs $5,233 44.0%All Other Expenses $2,621 22.0%Pretax Income $4,040 34.0%
Balance Sheet (mil)/Percent of Assets (03/11)
 
Cash $42,683 4.6%Segregated cash & securities $53,512 5.7%Fed Funds & Repos $162,094 17.4%Securities Borrowed $184,217 19.7%Receivables $87,619 9.4%Trading assets $374,806 40.2%Other $28,358 3.1%Assets $933,289 100.0%Short-Term Debt $53,746 5.8%Deposits $38,727 4.1%Trading $150,998 16.2%Repos $165,475 17.7%Other Securities $49,136 5.3%Payables $193,396 20.7%Other Liabilities $35,549 3.8%Long Term Debt $173,793 18.6%Preferred Stock $3,100 0.3%Common Equity $69,369 7.4%Est. Tangible Common Equity $64,131 6.9%
Key Ratios (03/11)
 
3-Year RPS CAGR (11.4%)3-Year EPS CAGR (19.4%)Tier One Common12.8%Return on Equity15.8%Return on Assets0.29%
Source: Trade Station
 
Thursday, May 12, 2011
© 2011 Rochdale Securities LLC. All rights reserved. PLEASE SEE IMPORTANT DISCLOSURE AND ANALYST CERTIFICATION LOCATED AT THE END OF THIS REPORT.
Rochdale Securities LLC750 E. Main St., 7th FloorStamford, CT 06902Main 203.274.9100
 
ManagementTradingDan Crowley
Presidentdjc@rochdalesecurities.com203.274.9101
 
Kevin Cassidy
Senior Vice PresidentChief Operating Officer kjc@rochdalesecurities.com203.274.9116
 
Kris Talgo
Senior Vice PresidentTrading Co-Headklt@rochdalesecurities.com203.274.9125
 
Hal Tunick 
Senior Vice PresidentTrading Co-Headht@rochdalesecurities.com203.274.9124
 
Financial Analyst Merger Arbitrage and Special SituationsRichard X. Bove
Vice President Equity ResearchFinancial Sector rbove@rochdalesecurities.com813.909.1111
Barry D. Kaplan
Merger Arbitrage and Special Situations bdk@rochdalesecurities.com203.274.9121
Institutional SalesKeith Arnott
 jka@rochdalesecurities.com732.758.6981
Trey Bauer
tbauer@rochdalesecurities.com203.274.9137
 
Richard Bennett
rbw@rochdalesecurities.com732.758.6982
 
Joseph Bove
 jab@rochdalesecurities.com813.963.2999
 
Patrick Burke
 prb@rochdalesecurities.com203.274.9127
Pete Doehla
 pkd@rochdalesecurities.com203.274.9128
 
Allen Jordan
anj@rochdalesecurities.com203.274.9120
 
David Miller
dmiller@rochdalesecurities.com203.274.9131
Niall Morrissey
nmm@rochdalesecurities.com203.274.9130
Richie Oddo
ro@rochdalesecurities.com732.758.6988
 
John Ratkoski
 jratkoski@rochdalesecurities.com732.758.6986
 
Kristen Talgo
klt@rochdalesecurities.com203.274.9125
 
Hal Tunick 
ht@rochdalesecurities.com203.274.9124
 Jeff Wicker
 jdw@rochdalesecurities.com925.253.1030
 

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Patrick added this note
RB's Sell on Goldman not convincing. The firm has attracted attention b/c it is successful. Congressional hearings have shown that there is no "smoking gun". The SEC had to retract its charges a few months ago.
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