BANGALORE (Reuters) - Several Wall Street analysts cut their fiscal 2008 earnings outlook on Goldman Sachs Group Inc (GS.N) citing difficult market conditions, even as they see the investment bank as the best positioned player in the financial services sector.
“As they say, you can not make apple sauce if you do not have an apple. In Goldman’s case, you cannot have strong earnings in a market that provides few opportunities,” veteran banking analyst Richard Bove said.
Goldman on Tuesday posted a 70 percent drop in quarterly profit, its biggest earnings decline since it went public in 1999. It, however, beat profit expectations and has so far survived the credit turmoil better than its peers.
Despite lower third-quarter results and a challenging near-term outlook, Goldman is still in a “power position” within the financial services industry, Douglas Sipkin, analyst at Wachovia Capital Markets, said. He upgraded the stock to “outperform” from “market perform.”
Banc of America Securities’ Michael Hecht, however, said Goldman’s results show that even the largest U.S. investment bank is not immune from cyclical challenges the industry is facing. He forecast 2008 earnings of $11.90 for Goldman.
Hecht’s estimate is the lowest yet among Wall Street analysts, who expect Goldman to post 2008 earnings in the range of $11.90 a share to $14.13, down from their prior forecast of $12.45 a share to $15.53.
“Although GS continues to outperform peers and valuations may seem attractive, we remain cautious on brokers as they battle, in our opinion, a protracted period of negative operating leverage,” Oppenheimer & Co analyst Meredith Whitney said.
Goldman’s third-quarter net income fell to $845 million, or $1.81 a share, for the fiscal quarter ended August 29, from $2.85 billion, or $6.13, a year earlier, as one of the worst market slumps ever weighed on banking and trading results.
The results upset investors and came during a week in which Lehman Brothers Holdings Inc LEH.N filed for bankruptcy, and Merrill Lynch & Co Inc MER.N agreed to sell itself to Bank of America Corp (BAC.N).
Analysts at Morgan Stanley, Sanford C. Bernstein, Credit Suisse, JP Morgan, UBS, Citigroup, Merrill Lynch and S&P Equity Research also turned more downbeat on Goldman’s outlook.
Shares of Goldman were down about 10 percent at $120 in morning trade on the New York Stock Exchange.
Editing by Jarshad Kakkrakandy