Bernstein Research analyst Brad Hintz cut price targets and earnings estimates for Goldman Sachs Group Inc. and Morgan Stanley on Monday, saying a capital markets rebound will not happen until 2013.
Like several other analysts, Hintz sharply cut his third-quarter estimate for Goldman Sachs to a loss of 20 cents per share, from a previous profit estimate of $3.38 per share. The decline comes largely from expected mark-to-market losses on Goldman's stock and bond portfolios.
On average, analysts now expect the largest U.S. investment bank to earn $1.35 per share for the period, down from $2.65 per share a month ago, according to Thomson Reuters I/B/E/S.
Hintz also lowered his third-quarter earnings estimate for Morgan Stanley to 12 cents per share from 37 cents per share. He lowered price targets for the two Wall Street banks to $180 from $205 for Goldman and to $30 from $35 for Morgan Stanley.
"Unfortunately, the U.S. recovery has stalled and sovereign debt risk in Europe has roiled the global capital markets," said Hintz. "This has depressed the revenue run-rate of the broker dealers and hastily pushed the 'rebound' beyond 2012."
Both Goldman and Morgan Stanley have seen sharp declines in their stocks this year. Investors worry that they may not be able to earn more than their cost of capital due to weak trading volumes, new regulations and higher capital requirements.
The companies are trading below their tangible book values, and Hintz kept an "outperform" rating on both stocks partly for that reason. He believes the two banks will eventually achieve higher return-on-equity levels and stock prices, but cautions that it may not happen until 2013 or beyond.
"There is no great hurry to buy this economically sensitive sector," Hintz wrote in his report. "However, valuation levels provide a compelling opportunity for investors willing to accept the risk and eventual outcome in Europe."
Goldman closed at $95.18 on Friday, down 43 percent for 2011. Morgan Stanley closed at $13.72, down 50 percent for the year to date.
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