Goldman Sachs in the News: Earnings Beat and Conviction Buy Shakeup with Ford and GM

Andrew Klips  |

Goldman Sachs Group, Inc. ($GS) has found itself all over headlines Tuesday morning.  The big investment bank reported better-than-expected second quarter earnings and, separately, made some changes in its view on the best investments in automakers.

On the earnings front, Goldman said its second-quarter profit doubled and revenue climbed 30 percent . The company reported earnings of $1.93 billion, or $3.70 per share, easily beating analyst predictions of $2.88 per share in profits.  In last year’s quarter, Goldman earned $927 million, or $1.78 per share.

Revenue was $8.6 billion in the recent quarter, also topping expectations of $7.9 billion.

Turning to ratings, Goldman maintained its “buy” rating on Ford Motor Co. (F) and hiked its price target from $17 to $20, but also cut the automaker from its prized “Conviction Buy” list, a collection of stocks that GS expects to outperform industry peers.

Apropos, analysts at Argus raised their price target on Ford on Monday to $21 from $19.

Meanwhile, Goldman replaced Ford with General Motors Co. (GM) on its Conviction Buy list, upping the price target for GM from $38 to $45, saying near-term catalysts are not priced-in to the current valuation.  Goldman noted that Ford shares have risen more than GM (about 11 percent more) since the beginning of May, making GM more favorable from a risk/reward perspective.

Shares of GM are up about 30 percent so far in 2013 and 85 percent in the past year.  Ford shares ahead only a couple points more than GM in both timeframes.

Analysts have varying views of GM.  A week ago, Zacks reiterated a “neutral” rating and $37 price target on GM.  Jeffries Group maintains a similar attitude on GM with a “hold” rating and $36 price target, while UBS is more on the same page as Goldman with a “buy” rating and $43 price target for GM.

Goldman lowered its rating on the automaker sector on the whole to “neutral,” despite information on Monday that the auto sector helped drive U.S. retail sales in June.  The Commerce Department reported that retail sales rose by 0.4 percent last month, mostly on the back of a 1.8-percent surge in auto purchases, the largest monthly gain since November.  Excluding autos, retail sales edged up a less-than-expected 0.2 percent, the weakest gain since January.

Also in the auto space, Goldman slashed its view on Delphi Automotive PLC (DLPH) , dropping Delphi’s rating from “buy” to “neutral.”

In early Tuesday trading, investors aren’t reacting much to Goldman upping its targets on F and GM or its earnings beat.  Shares of Ford are down 2 percent.  Shares of General Motors and Goldman Sachs are essentially flat.

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