Goldman Sachs is adding State Street (NYSE:STT) to their Conviction Buy list this morning as:
1) tangible common equity may exceed 5% at the end of 2Q, which will go a long way to reassuring investors that State Street has enough capital.
2) 2Q earnings are likely to be in line to better than expected which will look good on an absolute basis and great on a relative basis compared to the rest of the banks and brokers.
3) valuation is compelling at just 13.3X GSCO's 2008E and 12.6X 2009E versus a historical range of 15X-20X; simply getting back to the low end on 2009E would represent 20% upside. Firm's 12- month target is $83, which would imply a 2009 P/E of 15.4X.
Capital has clearly been the biggest concern at State Street and Goldman believes 2Q results in mid-July will go a long way toward reassuring investors. In their previous note on STT, they noted that the company’s capital raise brought pro-forma tangible common equity to 4.6%. This is as of 1Q-end, and does not include the green shoe which was exercised. Adding in another quarter of retained earnings (40bp), and the green shoe (15bp), the ratio should rise to 5.15%. They believe unrealized losses have been relatively stable in 2Q to date while 2Q earnings should be buffered by big securities lending results. Consequently, the firm has raised their 2Q estimate slightly to $1.34 and on 2008 estimate to $5.15. 2009-2010 estimates are unchanged at $5.40 and $6.00.
Notablecalls: I know some pretty smart operators that have been buying STT in light of recent weakness. I think STT will be a $70+ stock today.
1) tangible common equity may exceed 5% at the end of 2Q, which will go a long way to reassuring investors that State Street has enough capital.
2) 2Q earnings are likely to be in line to better than expected which will look good on an absolute basis and great on a relative basis compared to the rest of the banks and brokers.
3) valuation is compelling at just 13.3X GSCO's 2008E and 12.6X 2009E versus a historical range of 15X-20X; simply getting back to the low end on 2009E would represent 20% upside. Firm's 12- month target is $83, which would imply a 2009 P/E of 15.4X.
Capital has clearly been the biggest concern at State Street and Goldman believes 2Q results in mid-July will go a long way toward reassuring investors. In their previous note on STT, they noted that the company’s capital raise brought pro-forma tangible common equity to 4.6%. This is as of 1Q-end, and does not include the green shoe which was exercised. Adding in another quarter of retained earnings (40bp), and the green shoe (15bp), the ratio should rise to 5.15%. They believe unrealized losses have been relatively stable in 2Q to date while 2Q earnings should be buffered by big securities lending results. Consequently, the firm has raised their 2Q estimate slightly to $1.34 and on 2008 estimate to $5.15. 2009-2010 estimates are unchanged at $5.40 and $6.00.
Notablecalls: I know some pretty smart operators that have been buying STT in light of recent weakness. I think STT will be a $70+ stock today.
Your commentary makes my day easier.
ReplyDeleteIt is getting harder out there. Enjoy your consistency.
Please work as hard as I do. :-)