Institutional Broker Defends Goldman Sachs (GS)

Sandler O’Neill is an institutional brokerage firm that many individual investors have not ever heard of, yet it has been around for roughly 20 years.  It also does business in some form or fashion with most of the big institutions on Wall Street.  So it is with no surprise that the firm sticking its flag in the sand and calling Goldman Sachs Group Inc. (NYSE: GS) a "buy" is actually helping shares of broker-turned-banker stock.

The firm raised Goldman Sachs’ rating to a "Buy" from "Hold" today.  It expects Goldman Sachs to post itsfirst quarterly loss, and its old $1.43 EPS estimate is now -$1.72 EPS.

The firm said the stock is a good value which will rebound in 2009 and end up being a strong long-terminvestment for those who can weather this storm.   Its thesis is thatGoldman would have to lose money for nine consecutive quarters at thecurrent rate for its tangible book value to come down to the current shareprice.

This upgrade couldn’t have come at a better time for shareholders andcouldn’t have been a gutsier call.  This is ahead of the actualearnings report and comes within a hair of the stock’s 52-week low. 

Shares are up 2.5% today at $72.70 and the intra-day low is $66.68.Before today, the prior 52-week trading range was $68.51 to $240.05.  At the end of last quarter, Goldman Sachs listed its own metrics of book value per common share as being $99.30.

Regardless of how this turns out, this is probably the boldest research call of the week. 

Jon C. Ogg
November 11, 2008