Eyeing Goldman Sachs Earnings On Tuesday

2008 will be remembered as the year Wall Street ceased to exist! The Investment Banking model essentially died with elaborate, excessive and downright dangerous investments in poor credit. The companies that have survived on their own, Morgan Stanley (MS) and Goldman Sachs (GS) had to change their business structure and take government money. A year to forget for all financial companies.

Write-downs have been aplenty, but somehow Goldman Sachs has been able to keep everything on the profitable level. While profitability has been in substantial decline for the firm lead by Lloyd Blankfein, Goldman was the one investment bank that could claim profits quarter after quarter. This time however, investors expect the party to end.

With Goldman on tap to report its quarterly results on Tuesday, analysts are giving no chance of profitability by predicting about a $3/share loss. As bad as things were, Goldman was prior still expected to eek out a tiny profit. But with the market’s latest downturn, the worsening of the US economy and the lack of business deals in a quarter marked with losses that eek has turned from black to red by those same analysts.

According to MarketWatch, analysts expect a $2.83/share loss for Goldman Sachs, while a similar number is seen from Zacks Investment Research, with an average loss of about $3.30/share expected. Goldman shares have been on a steady decline, but were propped from lows in the $50s to a near term high of about $80. Investors should note that Goldman has surprised before, and can surprise again. The first quarterly loss during the public history of the company seems inevitable via the collective of analysts but the size of the loss will determine Goldman’s direction going into 2009. With shares sitting in the mid 60s, a positive (relatively speaking) result may spark shares back to near term highs.

While economists and market analysts expect 2009 to be tumultuous to say the least, the common perception is that the latter half of 2009 will proliferate a US recovery, spurred by President Barack Obama’s infrastructure initiatives and a return to typical lending practices for the major banks. Goldman will be primed for a recovery rally with the market, but as it is transformed further into a bank, expectations will be muted for sometime to come.

With that in mind is Goldman a good investment? A resounding yes! The smartest folks on Wall Street work for a company that has seen all but one of its competitors go bankrupt or be bought up by larger financial institutions. MarketWatch analysts have an average target of $135, but $100 may be more reasonable over 2009, based on market recovery, which potentially finds Investors of Goldman netting a 54% gain.

The competitive landscape has surely changed but Goldman was left standing. It had always been the strongest in its field, and after investors digest tomorrow’s results a case can be made whether it will continue to be.

Disclosure: Author owns GS

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