Goldman Sachs Gets a Price Target Boost
Goldman Sachs Group Inc (NYSE:GS) has not been knocking its performance out of the park for 2017 by a long shot, especially with a core fixed-income, currencies, and commodities (FICC) segment weighing the banking giant down 23% year-to-date, which looks pretty dismal compared to an overall industry dip of roughly just 7%. Worthy of note, it was only last year that Goldman’s FICC business was reaping around 25% of its total revenues.
However, did yesterday mark a clearing of the woods for Goldman Sachs? The giant posted a third quarter earnings beat despite experiencing a 26% slump in bond trading revenue- a decrease that certainly improved upon last quarter’s 40% plunge. Even the company’s return on average tangible common shareholders’ equity (ROTCE) almost hit 11% for the beginning nine months, which is not that far off from banking rivals.
Oppenheimer analyst Chris Kotowski stands by Goldman Sachs, defending that “even when they’re not doing well they do pretty ok.”
On back of the EPS outclass, the analyst maintains an Outperform rating on Goldman Sachs stock while lifting the price target from $261 to $279, which implies an 18% increase from where the shares last closed. (To watch Kotowski’s track record, click here)
For the third quarter, GS yielded $5.02 in EPS, outperforming the analyst’s projection of $4.15, which he bdeems as “clearly driven” by standout investing and lending performance that likewise was largely responsible for the $652 million total revenue outperformance. Investment banking saw around a $200 million beat, but trading dipped $200 million under expectations.
“What is significant about the quarter in our mind was that GS seems largely back on trend with peers,” explains Kotowski, who has bumped up his forecasts for fourth quarter as well as for the next year by 5%.
What happened that led to Goldman Sachs’ recent downward turn in FICC? GS CFO Chavez mentions that more or less half of the pratfall stems from $5.6 to $4.3 billion involved in commodities trading inventories, with the other half having arisen in the second quarter. The analyst writes, “It’s never great to have trading inventory losses, but at least it is a reasonable explanation for at least half the underperformance.”
“Goldman took home more than 11% of the FICC fee pool in our tracking group in both 2015 and 2016, but probably only about 8% so far this year. Equities trading is down 1.7% when the group is up about 1.4%. So okay, they are not having a great year. However, what is really notable is that, despite those poor comparisons, Goldman’s ROTCE for the first nine months is still nearly 11% which is basically in line with some of the key competitors.”
Overall, “we would expect GS to really shine when/if some volatility returns to fixed income markets. Recognizing that that has been longer in coming than we or anyone expected, […] we think the stock is cheap enough to wait it out,” surmises Kotowski, rooting for the banking giant through all kinds of weather.
Only two others on Wall Street join Kotwoski in the land of the bulls, with TipRanks analytics indicating GS as a Hold. Based on 11 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Goldman Sachs stock, 7 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $237.90.
Lam Research Excites with Stellar Shipments
Lam Research Corporation (NASDAQ:LRCX) yielded a positive first fiscal quarter performance for 2018 with strong second fiscal quarter estimates, leaving B. Riley analyst Craig Ellis affirming that his “growth thesis [is] firmly on track” between revenue and EPS outclasses. Even more thrilling for Ellis is gross margin and operating margin leverage, which leave him as confident as ever before on the semiconductor player’s ability to drive earnings upside.
In reaction to the strength of the print, the analyst reiterates a Buy rating on LRCX stock with a price target of $220, which represents a 12% increase from where the stock is currently trading. (To watch Ellis’ track record, click here)
“An $18.MM/ $0.16 premium to the Street may have been a little lower than hoped on sales […] but EPS leverage was robust and better than expected,” highlights the analyst.
LRCX saw a 5.7% rise in revenue to $2.478 billion while reaching EPS of $3.46 for the first fiscal quarter, with gross margin surging to 47.2%. “So, very strong quarterly execution as we expected with balanced and shareholder friendly cash return,” the analyst continues, also commending a revenue mix that exhibited promising fulfillment execution. Sales surged $64.0 million past the Street along with a whopping $150.0 million past the analyst’s own “admittedly conservative” expectations. Additionally, EPS outperformed the Street by $0.36 and beat the analyst’s projection by $0.56.
The shipment guide looking into the second fiscal quarter looks encouraging at $2.600 billion, which would suggest a 9.2% incline. Moreover, Ellis anticipates upside could surface in the third quarter for shipments. Outlook set for EPS annualizes to $14.50, a far cry ahead of the analyst’s fiscal 2018 estimate for EPS of $12.82 and even for 2019 of $13.81. For the bears that might argue a “peak must be coming soon,” the analyst would not be surprised to see shipments escalate far into the first half of calendar 2018.
Ellis underscores that LRCX “solidly exceeded Street F1Q18 and F2Q18 sales estimates and outperformed more meaningfully on EPS, led by robust GM and strong opex control. Even so, shares seemed to ease 1%, digesting a +30% gain since end-July. RILY is impressed with the balanced country profile to shipments and revenue, which we believe affirms a strong growth thesis, and at the margin we are even more impressed by robust GM and OM leverage, a driver to upside EPS that is far exceeding our own bullish expectations. […] we look for an update on mgt’s C17 industry view, potentially a signal on C18 yy industry growth, and perhaps LRCX’s C1H18 prospects. LRCX remains Buy-rated and we would aggressively add to positions on the weakness.”
Most analysts are right there with Ellis backing this semiconductor stock, with TipRanks analytics revealing LRCX as a Strong Buy. Out of 10 analysts polled by TipRanks in the last 3 months, 9 are bullish on Lam Research stock while 1 remains sidelined. With a return potential of nearly 7%, the stock’s consensus target price stands at $207.44.