On the Heels of Lehman's Losses, Goldman Shines Again

As the turbulent and tumultuous times that are the Investment Banking earnings season move from just-around-the-corner to in-full-swing, all Wall Street eyes were on the leader of the pack. Goldman Sachs (GS). With the market continuing to see credit losses dragging down the performances of the Financial sector companies, there wasn't much to look forward too, and even less to be optimistic about.

Lehman Brothers (LEH), reported the first quarterly loss in the company's public history, and it was fairly hefty at that, $2.8Billion. Now that the cross-hairs are on Goldman, it was up to the darling of the Investment Banking world to reassure the industry all is not lost. Profits and Revenues were expected to decline at Goldman Sachs, but the company's ability to maneuver through the credit crisis gave it the ability to keep its head more than above water, while rivals continued to stumble.

Goldman's results were better-than-expected, despite year over year declines, and the executive branch at the head of the organization are singing their own praises. This little ditty from Lloyd Blankfein pretty much sums up the atmosphere around the sector and Goldman itself:

"Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter."

So you know it's party city down at the Goldman camp (Let's hope no one invites Henry Nicholas).

GS delivered profits of $2.09Billion, which equates to $4.58/share, down 11% from last year. On the top line, the drop was only 7.5% to $9.42Billion. Considering analysts were expecting $3.42/share on revenue of $8.74Billion this was indeed a substantial earnings beat. After an initial jump Goldman shares are coming back to the general market and as this company sits in the 180s it's time again to ask, just what the possibilities are for a trade from here?

Granted Goldman's Price to Book ratio has been notoriously higher than its peers at around 1.9, but that doesn't make it expensive. The industry, through this downtrend and the losses is in a time of consolidation and new metrics. In fact, Goldman, on Price to Book is inching closer to the sector near the high 1.7s. Since P/E ratios don't mean much if they're negative, for some other Investment firms, analysts need new ways of valuation. But GS, has always been on a profitable path, and its trailing P/E now stands at 8! In a perfect world this ratio would be at 12 and it's forward number about the same.

An opportunity exists over the next year or so, to truly make a splash with Goldman Sachs. The cream rises to the top as they say, and a year from now, when GS is looking at trailing earnings once again getting $20/share with a trailing multiple near 12, shareholders getting in the company at this $170-$180 stage will inevitably be 30 to 40% to the good.

Disclosure: Author owns GS