JPMorgan: Goldman Sachs Will 'Perform Better Than Peers'

JPMorgan’s Kian Abouhossein reconfirmed a cautious stance on the banking sector, following the U.K.’s vote to leave the EU.

Abouhossein maintains an Overweight rating on Goldman Sachs Group Inc GS, while lowering the price target from $179 to $163.

Better Than Peers

The analyst expects CoE to increase for banks exposed to U.K. credit, given the significant uncertainty regarding the U.K. and EU banking sector.

Abouhossein explained the base case scenario was “a slowing EU economy leading to lower rates.”

However, the analyst expects Goldman Sachs to perform better than its peers against the current backdrop of a challenging revenue environment, given the company is a Tier 1 player in both the Equities and Fixed Income sectors.

Related Link: Post-Brexit Analysis Shows Many ETFs Did Their Jobs</bzrelatedlink.

Estimates Revised

The EPS estimates for the company have been reduced by an average of 19 percent for 2016 and by an average 10 percent for 2017 and 2018 to reflect lower IB and I&L revenues due to the decline in the markets.

“We see material impact on IBD activity in H2 16E due to macro uncertainty although the impact could be lower than for European IBs. In addition, no clarity on passporting issues could potentially weigh on the IB performance in the short to medium term,” Abouhossein stated.

The analyst expects Goldman Sachs to spend a cumulative $13.5 billion on buybacks during 2016–2018, while the share count is expected to decline by 16 percent over the same period.

“We believe for a well capitalised bank like GS with no capital/leverage issues, buying back shares when the stock is trading below NAV is the right strategy leading to earnings accretion,” the analyst added.

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Posted In: Analyst ColorLong IdeasEurozonePrice TargetPoliticsMarketsAnalyst RatingsTrading IdeasGeneralJPMorganKian Abouhossein
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