July 9, 2009 / 11:47 AM / 9 years ago

UPDATE 2-BofA-Merrill raises Goldman Sachs to buy, ups target

(Recasts, adds analysts’ comments, background; updates share movement)

July 9 (Reuters) - Goldman Sachs Group Inc (GS.N) was upgraded to “buy,” and its second-quarter outlook raised at Banc of America Securities-Merrill Lynch, which said the Wall Street bank, helped by strong trading conditions in the quarter, could beat estimates for the period.

Shares of the company jumped 2.23 percent in pre-market trading after closing at $138.55 Wednesday on the New York Stock Exchange.

Analysts, led by Guy Moszkowski, also increased their target on Goldman shares to $175 from $144, raised earnings outlook for 2009 and 2010, and said the company’s earnings power and book value were increasing rapidly again.

Goldman has managed to sidestep the worst of the financial crisis, posting just one quarterly loss since the middle of 2007, while most of its competitors reported huge losses and took massive asset-writedowns.

B of A-Merrill analysts, who previously rated the stock “neutral,” raised their second-quarter earnings estimate to $3.90 a share from $2.92, to reflect significantly better trading, principal gains and investment banking revenue.

U.S. commercial banks reported record trading revenue in the first quarter of 2009, benefiting from wide trading margins and gains from interest rate products, according to the Office of the Comptroller of the Currency.

Trading conditions for Goldman in the current quarter appears to have been a continuation of that seen during the first quarter, B of A-Merrill analysts said.

“Buoyed by stable volumes as spreads tightened, fixed income markets continued to see wide bid/ask spreads on muted competition,” the analysts said.

Second quarter could also be a record quarter for Goldman in terms of equity underwriting, the analysts said.

The second quarter saw a revival in global equity underwriting volume as firms raced to recapitalize while market conditions were favorable, the analysts said.

They raised their earnings estimates for Goldman to $16.30 a share from $14.06 for 2009, and to $19.78 from $17.63 for 2010 on expectations of better trading revenue.

B of A-Merrill analysts are the latest in a long line of securities analysts to raise their second-quarter earnings outlook for Goldman.

Analysts at FBR Capital Markets in June raised their second-quarter forecast for Goldman citing likely gains from a favorable trading and capital markets environment. (Reporting by Tenzin Pema in Bangalore, Editing by Dinesh Nair)

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