The Goldman Sachs Group (GS)

We are downgrading our recommendation on The Goldman Sachs Group (GS - Analyst Report) to Underperform from Neutral based on expectation of continued lower top-line as in 2011, coupled with the fundamental pressure on the banking sector. Though the company reported profits, increased operating expenses and lower equity trading revenues remain matters of concern.

Though Goldman has a well-managed global franchise and strong capital base, regulatory issues, including lawsuits, are expected to dent the financials of the company in the upcoming quarters. During 2011, the company was sued by various firms for misrepresenting documents as an underwriter in the sale of mortgage-backed securities. Final judgment on these lawsuits has yet to be determined.

Our six-month price target of $98.00 equates to about 8.5x our earnings estimate for 2012. Combined with the $0.35 per share dividend, the price target implies an expected negative total return of 8.3% over that period, which is consistent with our Underperform recommendation.

The Goldman Sachs Group (GS) : FULL ANALYST REPORT

Read the full analyst report on GS