It’s time to sell US investment giant Goldman Sachs as all the good news is priced into the share, reckons German broker Berenberg.
Goldman shares have been strong in recent months and valuations look stretched, says Berenberg analyst James Chappell.
These are at three times’ revenues and 1.4 times’ tangible book value with tax cuts, capital return and a boost to revenues all seemingly priced in, he says.
Since the start of the fourth quarter of 2016, Goldman’s share price has risen 60%, due to better operating performance, but also largely due to events since the Trump election win.
“Undoubtedly GS has operating leverage following recent changes, but we struggle to see where a material increase in revenues will come from considering industry operating trends, nor how GS could add $200bn of assets without diluting revenues,” adds the analyst.
Berenberg has downgraded its recommendation to ‘sell’ from ‘hold’ and lifted the price target to $190 a share from $140
The broker adds however: “We believe GS is the leading investment bank due to its risk focus and ability to adapt.”
However, it does not believe it can fight the structural headwinds Berenberg sees in the sector that will cause revenues to continue to fall by 4-5% per year.
“GS can take market share meaning revenues fall by less, but the structural headwinds from the debt burden, low yields, slowing money velocity, falling collateral velocity, derivatives regulation and liquidity rules mean a return to the heyday of the 2000s is highly unlikely, in our view.”
Story by ProactiveInvestors