Goldman: Weak Earnings Don?t Mean the Stock is Doomed

[Stocks-to-Watch]

Analysts have been outdoing* each other in recent weeks as they slash earnings expectations for Goldman Sachs (GS). Today, Citi analyst Keith Horowitz cut his fourth quarter EPS expectations to $1.10 from $2.45, below consensus expectations for $1.68; he also lowered his 2012 forecast to $11 from $13.70, below consensus expectations for $12.11. Goldman’s investing and lending businesses are struggling, and regulatory pressures could weigh on the stock for awhile.

But that doesn’t mean investors should stay away from the stock, Horowitz argues.

“We continue to see strong value in GS shares trading at 75% of our $132/share year-end 2012 tangible book value estimate. New regulations & capital rules will create headwinds, but we have confidence this management team can recalibrate its business model to deliver mid-teen returns. One key question is whether this model will be driven off a smaller revenue base and balance sheet, which would potentially free up capital for share buybacks. With GS shares currently trading below tangible book value, we see this as a potentially attractive scenario, given any buybacks below TBV are accretive.”

Original Article Source by Barrons.com