The Goldman Sachs Group, Inc.
), the leader among the surviving investment banks, seems to be outperforming the market in 2009. In the quarter ending March 2009, the bank surprised the Wall Street by announcing an EPS of $3.39 per share as compared to the consensus estimate of $1.5. In the quarter ending June 2009, the EPS estimate ranges from a low of $1.56 to a high of $4.7 with a consensus estimate of $3.24. As per my calculations the EPS could be in the range of $3.25 to $3.40. The bank's earnings reflect significantly better trading, principal gains and investment banking revenue.
The bank is known for its ability to adapt. During the Asian crisis at the end of the last decade, GS made several significant investments in consumer and real estate assets. After the dislocation that followed Long Term Capital Management's problems in 1998, GS increased its fixed income market share. Following the telecom and technology bubble, the bank built up private equity and mezzanine investments. After the failure of Enron when capital was scarce in the power sector, GS invested in power plants, resulting in recurring trading revenues as well as gains from restructuring power contracts. In each instance, Goldman Sachs was able to identify opportunities during times of market dislocation. In this same vein, the bank has proven its ability to adapt its own structure, time and again, to meet rapidly shifting market conditions. Over the last two decades, the bank has taken dramatic steps to transform in the face of formidable circumstances.
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As the credit markets have begun to recover during the first half of 2009, investment divisions of banks have seen a sharp increase fixed income trading compared with the second half of last year, when markets were essentially shut down by the growing credit crisis. Goldman is one of the strongest banks amid the recent downturn and is performing better than the industry average. While the S&P 500 companies EPS growth rate is 17.3% for 2009, Goldman Sachs EPS growth rate is around 188%. For the entire year 2009, the bank could report EPS in the range of $15 to $16.
While some of the near-term benefits are likely to subside from what is expected to be a very strong (second quarter), Goldman's franchise is intact and able to aggressively seek further share gains while competitors continue to be distracted with integrating acquisitions or simply remain more risk-averse. Growing market share should bolster Goldman Sachs's revenue for the remainder of 2009 and into 2010. The bank has been better able than its competitors to take advantage of dislocation in the market to add market share. That should provide a boost to the bank's trading revenue and offset any slowdowns that might be seen in trading later in the year.
Currently the stock is trading at $138.55 and looks to be on its way to touch the current 52 week high of $190.04 by the end of second quarter of 2009.