Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?It's hard to imagine that anyone in the big bucks world of investment banking would be a loser but the reality is that the competition is intense both among firms and within them. And the first quarter results suggest a big gap between winners like Morgan Stanley Inc. (NYSE: MS), Merrill Lynch & Co. (NYSE: MER), and Goldman Sachs Group (NYSE: GS) and losers like Lehman Brothers Holdings Inc. (NYSE: LEH) and Lazard Ltd (NYSE: LAZ). Will the winners be good investments and the losers bad?
Even though GS is beating LAZ, I have heard that Lloyd Blankfein, GS's CEO, is eagerly reading my brother William D. Cohan's, book, The Last Tycoons, presumably for the insight it provides into LAZ and its CEO Bruce Wasserstein. (I wonder if the rest of GS's 27,000 staff will feel compelled to read what's on the boss's reading list?)
So why are MS, MER and GS beating LEH and LAZ?
By my measure, the three winners outperform the losers in one-year stock price growth, revenue and earnings increases, and market capitalization per employee. Here's how:
- MS +35%. MS's revenues and profits grew 36% and 70% respectively in the first quarter. And at $1.5 million, the stock market puts a high value on its 57,845 employees.
- MER +26%. MER's revenues and profits grew 38% and 350% respectively in the first quarter. And at $1.3 million, the stock market puts a modestly high value on its 60,300 employees.
- GS +47%. GS's revenues and profits grew 30% and 29% respectively in the first quarter. And at $3.4 million, the stock market puts the highest value on its 26,959 employees.
By contrast, on this basis, LEH and LAZ have not done as well. Here's why:
- LEH +8%. LEH's revenues and profits grew 34% and 6% respectively in the first quarter. And at $1.4 million, the stock market puts a fairly high value on its 27.090 employees.
- LAZ +15%. LAZ's revenues and profits grew 11% and 34% respectively in the first quarter. And at $1.9 million, the stock market puts a high value on its 3,000 employees.
LAZ seems to have been sitting out the M&A party -- Deal Journal reports it had flat M&A advisory revenue -- in contrast to its much more aggressive rival, Evercore Partners Inc. (NYSE: EVR). Moreover, LAZ ranks 10th in Q1 2007 credited deals while CEO Bruce Wasserstein's former partner, Joe Perella's startup, Perella Weinberg, is getting into the game.
But past performance is not necessarily an indicator of value. If the low -- 6.6% -- average earnings growth forecast for the six competitors I tracked is correct, then these stock prices may not have that much further to go. On a PEG basis GS (7.89) and MS (4.35) are most overvalued. By contrast, given their PEGs, MER (1.33) and LEH (1.37) are the cheapest.
I'd be most bullish on MER.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
5-18-2007 @ 5:15PM
Leo said...
My business is a investment business which let our client to try our system to invest. The major invest we forcus on is forex. Forex trading become one of the most important investment nowadays. With our system we are sure that everybody will know how to do it follow our system procedure to trade forex. We also provide the Free 15days Trail with no credit card requirement to let people to try it for free to see if it's really work. What i can say is everybody who don't have any trading experience can actually use our simple system which take only one hour maxium to set up and 15mins per day to setting the system. For more information about our easiliest system Please visit www.thesimpletrade.com.