Tuesday, November 21, 2006

Calls of Note Part 7

- CIBC notes that when they initiated coverage of Goldman Sachs (NYSE:GS) on March 1, 2006, some were taken aback by their enthusiastic price target of $195, as the stock was then at $143. The stock is now close to $200 and the firm israising their price target once again, based upon the same valuation methodology but an even higher 2006 year-end book value estimate and a higher 2007 estimate outlook. Firm's thesis remains simple: Goldman will have the highest revenue growth of the group as they had dominant market share in the fastest growth and highest margin businesses such as M&A, commodities, distressed investing, and the most commanding presence in JC (Japan and China) of all its investment banking peers. They believe the highest correlation to outperformance amongst the brokers is with revenue growth and that Goldman will continue to grow faster than its peers due to its franchise position. In addition, while they do not project future gains from its Principal Investing portfolio, the firm believes that 2007 and 2008 will look much of the same way 2006 did in terms of additional earnings upside from investment gains.

CIBC believes that while some investors may question whether the exceptionally strong 2006 results create too difficult comparisons in 2007, they believe that Goldman has a proven track record of deploying its capital. A higher capital base should not be a concern for investors, as company management has stated recently that investment opportunities are the best they have ever seen.

Tgt is upped to $250 from $205.

Notablecalls: GS stock was up around 1 pt in after hrs trading following the call. I think it has a fair shot of hitting $200 today. That's where it is most likely to pull back. It's a kind of a trading rule (in a world of no rules) that round numbers act as resistance when reached the first time.

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