Goldman's Nightmare Week

A rough week for Goldman Sachs (GS) is finally over as the stock ended the week of 8/11 7.3% lower amidst numerous analyst downgrades.  Richard Bove from Ladenburg Thalmann began the week by cutting his forecast for the full-year and reiterating his "sell" rating for the company on Monday.  The highlights of downgrades for the week however, were on Tuesday when Mike Mayo from Deutsche Bank and Oppenheimer & Co. analyst Meredith Whitney lowered their rating and earnings expectations. 

According to an AP article, Mr. Mayo stated in his research report that, "In short, Goldman is no longer as much in the right place at the right time, at least compared to the past year."  He lowered his earnings forecast for the third quarter from $3.25 to $2.40 and cut his rating from "buy" to "sell."  Ms. Whitney cut her forecast for the quarter from $3.54 to $2.15.  Goldman Sachs shares ended down 6% on Tuesday. 

At the end of the week on Friday, JP Morgan also cut their outlook for Goldman Sachs.  Analyst Kenneth Worthington stated in a note to clients, "We believe the weakness in the third quarter of 2008 is due to the slowdown in execution and origination, not due to a major write-down in credit." 

Goldman's primary source of revenue has historically been from its Proprietary Trading desk, an obscure "black box" to analysts.  The trading desk at Goldman has produced record revenue for the firm in both good and bad markets (notably producing recent returns without regard to conflicts of interest between their clients and their trading desk).  Research analysts have been unable to successfully predict the revenue streams of the particular segment, and there is little to suggest that transparency has improved. 

Disclosure: None

Comments

[Tenderroot:]

Lowered estimates make it easier for GS to beat. Some big Oppenheimer funds sold their GS positions on 7/28, but since then, many funds have been adding to their GS positions.

2008 Aug 19 10:55 AM