Goldman Analyst Slashes Targets for Merrill

Goldman Sachs analyst William Tanona cut his Q3 EPS target for Merrill Lynch to $0.15, from $1.95 previously, and to $6.75 from $9.05 for the year, citing the possibility of a writedown of fixed-income assets as large as $4 billion resulting in a loss of $1.5B. Analysts were expecting Q3 and full-year EPS of $1.82 and $8.66, respectively. Tanona also lowered his price target on Merrill to $94 from $108 -- the stock has traded between $67 - $99 over the past year. In his note, Tanona said Goldman is "lowering estimates following a weak reporting season from the November year-end brokers" and noted Merrill "appears to be caught in the cross hairs of a number of headwinds in the quarter -- leveraged loan losses, mark to market losses on their CDO exposure, and deteriorating mortgage fundamentals." Rivals Bear Stearns and Lehman Bros. suffered $700M writedowns, while Morgan Stanley had a writedown of $940M and Goldman wrote down more than $1.5B. Shares of Merrill Lynch, which were down as much as 3.1% intra-day Wednesday, lost 0.5% to $71.75 and fell another 0.7% to $71.25 in extended trading.

Sources: Associated Press, Bloomberg, MarketWatch, TheStreet.com
Commentary: Regarding Merrill, Bear: Financials Hardly Out of Woods • Problems Ahead for Brokers - Barron's • Price/Book Not So Helpful in Assessing Broker-Dealers
Stocks/ETFs to watch: MER. Competitors: GS, MS, LEH, BSC. ETFs: IAI, KCE

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