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TheStreet Open House

Goldman Sachs: Post Sandy Financial Winner

NEW YORK ( TheStreet) - Goldman Sachs (GS) was the winner among the largest U.S. financial names on Wednesday, with shares rising 2.5% to close at $122.39.

The broad indexes ended with mixed, with thin volume, after Hurricane Sandy caused trading to be suspended for two days, and many investors were likely far more concerned with floods, property destruction, and disruptions in power and communications.

The Institute for Supply Management announced that its Chicago Purchasing Managers Index improved to 49.9 in October, from 49.7 in September, when the index saw its lowest level in three years. An index reading below 50 indicates contraction, and the ISM said that "the rate of expansion in Production and Equipment slowed while New Orders stalled near neutral and Order Backlogs remained in contraction."

The KBW Bank Index (I:BKX) rose 1% to close at 49.60 ,with all but four of the index components rising for the session.

Goldman Sachs's shares have now returned 37% year-to-date. The shares trade for 0.9 times their reported Sept. 30 tangible book value of $129.69, and for 10 times the consensus 2013 earnings estimate of $12.82 a share, among analysts polled by Thomson Reuters.

Based on a quarterly payout of 50 cents, the shares have a dividend yield of 1.63%.

Goldman reported third-quarter net earnings applicable to common stockholders of $1.458 billion, or $2.85 a share, increasing from $927 million, or $1.78 a share, in the second quarter, and a net loss to common shareholders of $428 million, or 84 cents a share, in the third quarter of 2011.

Third-quarter noninterest revenue totaled $7.5 billion, increasing from $5.5 billion the previous quarter and $2.2 billion a year earlier, as investment banking and market making revenue recovered, and the company booked $1.8 billion in investment gains, compared to gains of $169 million in the second quarter and trading losses of $2.5 billion during the third quarter of 2011.

The company reported a third-quarter return on average common equity of 8.6%.

Atlantic Equities analyst Richard State has a neutral rating on Goldman Sachs, with a price target of $120, saying on Oct. 17 that although the third-quarter bottom line greatly exceeded expectations "driven by mark to market private equity gains," the company's "underlying results were in line with expectations and on a normalized basis we estimate return on tangible equity was near 8%."

Staite said that Goldman's shares were "fairly valued," based on his forecast of a 9.5% return on tangible equity in 2013, and added that a cut in the employee compensation ratio "from the current 44% to JPM's 32% would boost ROTE to 14% but we think this highly unlikely."

GS Chart GS data by YCharts

Interested in more on Goldman Sachs? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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