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Stock Analyst Update

Goldman Sachs in Profitable Deal to Reach Retail Investors

Acquisition boosts trading and clearing, makes stock more attractive.

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Goldman Sachs’ (GS) $6.5 billion deal Monday to acquire leading specialist firm Spear, Leeds & Kellogg boosts its recurring revenues through a larger presence in stock execution and clearing. And because this will help make earnings more consistent, it should benefit Goldman’s stock price as well. Thus, although the stock was up more than 6% early Monday afternoon, close to an all-time high of $133, its shares continue to look attractive for long-term investors.

The deal will add about 2% to Goldman’s bottom line, or about $0.13 to next year’s current earnings estimate of $6.65 per share. But on a cash earnings basis--without amortization charges--Goldman is estimating the deal will add 9% to earnings. The price paid was partly based on ensuring the deal was immediately accretive to Goldman’s earnings. And the addition to earnings only includes $50 million in savings achieved through lower financing costs; it doesn’t take into account any possible revenue synergies.

Alyssa Sibley has a position in the following securities mentioned above: GS. Find out about Morningstar’s editorial policies.