Analyst Picks and Pans: Goldman Sachs, Martin Marietta, Gymboree

Goldman Sachs Group (GS)

FBR Capital raises estimates, price target

Goldman Sachs Group is likely to benefit from an improving financial environment, including increased corporate underwriting and mergers and acquisitions activity, FBR Capital Markets analyst Steve Stelmach said Sept. 22. Stelmach raised his 2009 and 2010 earnings estimates as well as his price target for the New York-based bank's stock because of expectations for an improved market.

Stelmach increased his price target to $205 from $175.

In a research note, Stelmach said, "Our increased earnings expectations reflect a more sustainable environment for a higher average return on assets, which will serve to offset continued uncertainty around ultimate leverage ratios."

Even though Goldman has had to reduce leverage since the financial crisis peaked last year, its strength in the investment banking sector should help it generate strong returns on its assets, Stelmach said.

Goldman is also poised to take advantage of the dwindling competition, which should support it in areas such as advisory revenue from mergers and acquisitions, Stelmach said. He conservatively predicts the bank will generate $1.8 billion in mergers and acquisitions advisory revenue in 2010.

Stelmach raised his 2009 earnings estimate to $16.21 per share from $14.68 per share. Analysts polled by Thomson Reuters, on average, forecast earnings of $16.71 per share.

Goldman is now likely to earn $18 per share in 2010, Stelmach said. He previously predicted the bank would earn $16 per share in 2010.

Martin Marietta Materials ()

UBS downgrades to neutral from buy

A stronger-than-expected recovery is benefiting Martin Marietta Materials, which supplies gravel and sand to road builders, UBS analyst Timna Tanners said Sept. 22 as she downgraded the company's shares to reflect new risks.

"We believe investors have taken notice of an imminent improvement in earnings, largely as a function of stimulus dollars that should be evident in fourth-quarter profits," she said in a client note. State and local bonds eligible for a federal subsidy can help offset weak spending on the state level, and the housing sector appears to be stabilizing, she said.

In addition, federal stimulus spending is a key part of an expected recovery next year, she said. Also, after four years of declining volumes, quarry and overhead costs have been trimmed, Tanners said.

Tanners said she sees a potential boost from spare cash on Martin Marietta's balance sheet, perhaps from small acquisitions. She expects a fourth-quarter recovery "to be the start of significant stimulus dollar benefit." She raised her price target to $102 from $97.

Gymboree Corp. (GYMB)

Friedman, Billings, Ramsey upgrades to outperform from market perform

Market share gains, improved merchandise and top-notch management were among the reasons Friedman, Billings, Ramsey analyst Adrienne Tennant gave for upgrading shares of children's clothing retailer Gymboree Corp. on Sept. 22.

Tennant said the company's Crazy 9 clothing stores division has improved greatly since last year. "We applaud management for rapidly addressing issues and having come a long way in a short time," Tennant wrote in a client note.

Meanwhile, Gymboree is gaining market share amid waning competition. Rival Talbots Kids, for example, has shuttered its operations. "We believe Gymboree is now one of the 'go to' brands for parents," Tennant wrote.

Shares of Gymboree have soared 92% so far this year, and while Tennant said that investors may shy away from a stock that has risen significantly, there's still room for it to run higher. Tennant's price target is now $59 from $46, which means she thinks the shares have room to rise 28% from the Sept. 21 close of $50.11.

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