Goldman Sachs Upgrades Credit Suisse (CS) to Conviction Buy

Goldman Sachs upgraded Credit Suisse (NYSE: CS) from Neutral to Conviction Buy.

Analyst Jernej Omahen said, "Firstly, underperformance has left CS shares with 35% upside potential to our target price, one of the highest in the sector; we therefore upgrade the shares to Buy and add it to our Conviction List. Importantly, our valuation is based on an “as-is” strategic course. In our view, the above 5 factors increase the potential for a further strategic adjustment. On our estimates this has potential to unlock additional upside – at current valuation levels, this represents a free option."

"Our analysis underlines that CS’ business mix embeds strategic optionality for group ROE expansion that other, non-Swiss, IBs don’t have. We believe that reorientation towards PB & WM has scope to: (1) improve returns, as we estimate ~5% “IB drag” on CS’ group ROE; (2) improve capital generation: with a 9.3% CET1, additional source of capital generation would be welcome, in our view; (3) reduce TBTF risk: we estimate the CS’ balance sheet amounts to 153% of Swiss GDP; of this, CS’s loan book accounts for 41% of Swiss GDP, while other (including all trading) assets 115%. Further reduction of IB would substantially improve the TBTF profile of CS, in our view; (4) close valuation gap to UBS: finally, UBS currently trades at a 51% and 42% premium on 2014E and 2015E P/TB. A strategic adjustment has scope to close this gap, in our view," he added.

For an analyst ratings summary and ratings history on Credit Suisse click here. For more ratings news on Credit Suisse click here.

Shares of Credit Suisse closed at $29.36 yesterday.

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