Tuesday, February 06, 2007

Calls of Note Part 2

- Merrill Lynch notes they have reviewed estimates for broker/dealers with a February 1Q. Raising GS 1QE to $5.07 from $4.89 and '07E to $17.98 from $17.48 for GS on the expectation of higher I-Banking results this quarter and better Trading results throughout year (on higher ROA and asset growth); current environment continues to favor GS' business mix. They are also raising BSC '07E to $14.82 from $14.36 on higher Trading results (but maintaining 1QE). These est. changes coupled with a higher S&P 500 multiple drives a higher price obj. for their Buy rated companies: GS to $230 from $222; LEH to $94 from $87; BSC to $190 from $170.

Market conditions remain robust overall, with strong equity markets, low interest rates, narrowing credit spreads, and a more supportive Fed as of Feb. 1. Trading revenues generally receive the strongest qtr-to-qtr bump from 4Q to 1Q, and 2007 appears to be no exception. Measurable volumes in Equities and Fixed Income appear slightly below 4Q, but trading profitability can belie this, and they expect this to again be the case in 1Q07.

M&A closings are running up 18% sequentially in 1Q and up 34% YoY. Announcements are running down slightly (-6%), but continue to outpace closings.

Equity Underwriting is running down 23% this quarter (+8% YoY), with International activity driving the downturn (-32% seq. while US is +6% seq.). Lucrative IPO activity remains strong, but is down 33% sequentially (+9% YoY), though Feb. looks off to a strong start.

Notablecalls: The charts on some of these brokers look pretty good.

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