Goldman Sachs (GS) will be the best stock to own in 2010, so says JMP Securities analyst Michael Hecht today in a note to clients in which he reiterated his “Market Outperform” rating on the shares and raised his target price from $204 to $240.
Goldman will get a boost from an expansion of asset management and investment banking business, with more IPOs and M&A expected, coming off of 2009′s depressed levels.
At the same time, the fixed-income, currencies and commodities (FICC) business at Goldman is on fire, up 99% this year to date, compared to a 20% average annual rise in the ten years from 1998 through 2008. FICC is seasonal, and though it will be down 23% this quarter from last, he expects a sharp bounce-back in FICC revenue next quarter, rising 47%. Total FICC revenue in 2010 will be down from 2009′s record levels, but still strong at $23.5 billion, writes Hecht.
Compensation will lower as a portion of revenue, too, at about 42% to 44%, versus 44% to 46% historically, as the company dishes out more comp into stock awards and pushes out vesting periods.
Hecht figures Goldman’s worth 11 times his 2010 estimate of $21 per share, which is up from his prior estimate of $18. He also uses a price-to-book valuation, arguing that at roughly 1.5 times current book value, Goldman is seriously cheap versus an average of 2.3 times.
Goldman shares today are up 26 cents, or 0.2%, at $164.02.
Previously: Merrill Cuts GS, MS, JPM Estimates on Slower Trading Volume, Dec. 29, 2009
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