Goldman Sachs Is 'Well Positioned For Stronger Macro Environment'; Deutsche Bank Upgrades To Buy

Deutsche Bank’s Matt O'Connor believes Goldman Sachs Group Inc GS is “well positioned for a stronger macro environment given revenue upside, good cost control and a valuation below peers.”

O'Connor upgraded the rating on the company from Hold to Buy, while raising the price target from $180 to $255.

Well Positioned

“A stronger economy should benefit many capital market businesses — incl advisory, equity capital markets, and both fixed and equity trading. This should also be a positive backdrop for investing and lending,” the analyst mentioned.

O'Connor anticipates much more robust GDP growth than had been earlier expected, along with at least a modest softening of regulation, greater global divergence in interest rates and an increase in the risk appetite of companies and individuals.

This combination is likely to benefit capital market business, especially those that are areas of strength at Goldman Sachs.

Debt Capital Markets

“The impact on debt capital markets is mixed (a stronger economy and more risk taking is good, but higher rates may slow certain types of issuance). This backdrop should also provide both more investing and harvesting opportunities for the investing and lending book,” the analyst went on to say.

Separately, O'Connor expects the recent roll out of a consumer lending platform to benefit the company, with the momentum becoming more visible in 2018.

The analyst estimates that it would add $400 million to Goldman Sachs’ after credit revenues in 2019.

Expenses

“From an expense point of view, GS has made good progress on both comp and non-comp and we see good leverage to incremental revenues,’ the analyst stated, while adding that ‘operating leverage should benefit from leadership positions in many products, reducing the need to invest heavily in certain areas like some peers may need to do.”

At last check, Goldman Sachs shares were up 1.06 in Wednesday's pre-market session, trading at $213.99.

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