The brokerage stocks have had a nice run as of late due in large part to the tremedous deal flow that has worked its way into the capital markets. Generally speaking I am rather bullish on all the brokerage stocks but I do have one favorite in particular: Goldman Sachs (GS). A quick look at the side-by-side comps will show a undervaluation that has taken place. In the analysis below I have compared Goldman's numbers to its largest competitors (Lehman Bros, Merrill, Morgan Stanley, Schwab) by using my favorite six metrics. (click on picture for an enhanced image)
I like Goldman at this level. They have spent more than $7 billion in repurchasing stock in FY05 and sports an ROE greater than 20%. Always atop the League Tables and with net revenues increasing +20% on a year-to-year basis, the outlook appears to be favorable. My research suggests that based on current earnings multiples, I expect GS trading higher than $150 per share within the next 12 months. At $150 I think gets a bit closer to being fairly valued.
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