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Analyst Blog

On Jun 4, 2013, we reiterated our long-term recommendation on The Goldman Sachs Group, Inc. (GS - Analyst Report) at Neutral based on its well-managed global franchise, strong capital base and recent investments. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.

Why Neutral?

Goldman reported its first-quarter 2013 earnings per share of $4.29, significantly surpassing the Zacks Consensus Estimate of $3.85. Moreover, reported earnings outpaced the prior-year quarter’s earnings of $3.92 per share.

Amid challenging global markets, better-than-expected results were driven by Goldman’s record revenues with an elevation in client activity. Moreover, decreased operating expenses reflect prudent expense management.

As a significant capital market player, Goldman could benefit from the material growth of the global markets. This was reflected in the first-quarter 2013 results, which improved primarily due to buoyancy in the capital markets. Management’s preference for organic growth over acquisitions will be beneficial with respect to cost and execution risk, over the long term.

However, Goldman’s investment banking revenues reflected an operating environment generally characterized by mixed activity levels as a result of continued macroeconomic concerns in first quarter 2013. If macroeconomic concerns continue and result in lower levels of client activity, investment banking revenues of the bank are likely to be adversely affected.

For Goldman, the Zacks Consensus Estimate for 2013 jumped 4.1% to $14.44 per share, over the last 60 days. For 2014, the Zacks Consensus Estimate remained stable at $15.07, over the same time frame. Hence, Goldman carries a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Some major banks that are worth considering include The PNC Financial Services Group, Inc. (PNC - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report) and Comerica Incorporated (CMA - Analyst Report). All the 3 banks hold a Zacks Rank #2 (Buy).

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