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Monday, November 10, 2008

Could there be a Better Buying Opportunity than Goldman Sachs at $69 per share

NEW YORK (AP) -- Shares of Goldman Sachs Group Inc. fell sharply Monday morning as another analyst cut his fiscal fourth-quarter forecast amid the severe downturn in the credit markets in recent months.

Goldman Sachs shares fell $8.55, or 11%, to $69.23 in morning trading.

Barclays Capital analyst Roger Freeman now projects Goldman Sachs will lose $2.50 per share during its fiscal fourth quarter, which ends Nov. 30. Freeman previously estimated Goldman Sachs would earn $2.71 per share during the quarter.

Freeman is just the latest analyst to slash his estimate for the bank.

Analysts, on average, forecast earnings of $1.16 per share for the quarter, according to Thomson Reuters. A month ago, analysts, on average, forecast earnings of $2.71 per share for the quarter.

Goldman Sachs is now likely to post a loss during the quarter because of a sharp drop in equity markets, which will likely hit the bank in its private equity business, Freeman wrote in a research note.

Write-downs likely

The bank is also likely to take write-downs on its principal investments in real estate as well as on bonds backed by mortgages and leveraged loans, Freeman said. The write-downs are due to continued illiquidity in investment markets and pressures from hedge funds deleveraging, Freeman added.

Nearly all banks have continued to face pressure in recent months from the continued problems in the credit markets. Goldman Sachs (GS, Fortune 500) and other investment banks have been especially hit hard. In September, competitor Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. (MER, Fortune 500) sold itself to Bank of America Corp. (BAC, Fortune 500) as investors worried stand-alone investment banks would no longer be viable.

Shortly after Lehman failed and Merrill was sold, both Goldman Sachs and Morgan Stanley received approval to change from stand-alone investment banks to bank holding companies, which are more traditional structures for typical commercial banks.

The change allows Goldman Sachs to build a strong deposit base to help bolster its capital reserves and fund its operations. The change in status also provides it with permanent and wider access to the Federal Reserve's lending program.

Freeman did note that shares could come under further pressure in the near term as expectations for the quarter continue to change, but are unlikely to fall much below $70 per share. Freeman's price target is $135. To top of page