KBW Cuts Estimates and Price Targets on Lehman, Morgan Stanley and Goldman Sachs (LEH, MS, GS)
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Keefe, Bruyette and Woods lowered Q3 EPS estimates and price targets on Lehman Brothers (NYSE: LEH), Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) ahead of the Q3 close on Friday. The firm cited, "1) expected residential mortgage/other asset write-downs, 2) weaker investment banking revs, 3) lower trading revs."
The firm lowered Q3 EPS estimates on Lehman from a profit of $0.26 per share to a loss of $3.66 per share and lowered their price target from $33 to $20. The firm is forecasting write-downs of $3-$3.25 billion for Lehman. The firm is maintaining its Market Perform rating on Lehman.
The firm lowered Q3 EPS estimates on Goldman Sachs from $4.00 per share to $2.17 per share and lowered their price target from $220 to $200. The firm is forecasting write-downs of $1.75-$1.8 billion for Goldman. The firm is maintaining its Outperform rating on Goldman.
The firm lowered Q3 EPS estimates on Morgan Stanley from $0.78 to $0.73 and lowered their price target from $55 to $52. The firm is forecasting write-downs of $1.6-$1.7 billion for Morgan. The firm is maintaining its Outperform rating on Morgan.
KBW expects investment banking revenues will be soft as the IPO market was virtually non-existent in August on the heels of a slow July. Also, convertible issuance also waned while follow-on deals remained very active. On the M&A side, deal volume will likely be recorded as the slowest August since the early 1990.
KBW said brokerage firms are suffering from balance sheet paralysis at the same time the delevering of balance sheets continues. They said as assets are being sold, unrealized losses are shifting to realized losses. Liquidity remains tight and asset repricing continues.
On a positive note, KBW said they believe they have likely seen the worst of the credit crisis in terms of the magnitude of the balance sheet marks simply because the absolute levels of these illiquid asset classes have been significantly worked down over the past 9 months. KBW is still concerned about exposures to Alt- A loans and related securities where exposures are meaningful and pricing is still eroding.
KBW said a the cumulative loss total for the industry is estimated to be $506 billion globally, of witch about $254 billion is in the U.S.
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