Zacks_Analysts' Blog : Goldman Buys 12% of Taikang Life - Analyst Blog

The Goldman Sachs Group Inc. (GS) has acquired 12.02% stake valued more than $900 million in China’s Taikang Life Insurance Co. Ltd., Reuters reported on Thursday. The financial terms of the deal were not disclosed. The primary intention of this acquisition was to gain from the growing demand for insurance products in the Chinese insurance market.

Taikang has approximately $44 billion in assets and 54 million clients across China. The China Insurance Regulatory Commission (CIRC) has approved the deal.

Last month, French insurance giant AXA SA agreed to sell its 15.6% stake in Taikang to a group of investors for $1.2 billion. Therefore, Goldman bought the stake from French insurer AXA SA.

Fundamentally, we expect Goldman to benefit from its well managed global franchise, strong capital base and industry leading position in trading and asset management.

Yesterday, Goldman announced that in order to strengthen its business control in Australian investment banking market, it seeks to buy the remaining 55% of its Australian and New Zealand joint venture. At current level, GS is strategizing to take full control in Goldman Sachs & Partners Australia Group Holdings Pty Ltd.

Though the joint venture recorded lower equity trading and overall profit decline in 2010, its prudent business model and strong fundamentals are expected to deliver better earnings in the upcoming quarters.

Estimate Revision Trends

Goldman is expected to release its first-quarter 2011 earnings on April 19, 2011. Over the last 30 days, 9 of the 12 analysts covering Goldman have lowered their estimates for the first quarter of 2011, while no upward revision was witnessed.

Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of $1.54 per share, a decline of 72.51% from the year-ago quarter. Furthermore, over the last 30 days, operating earnings estimates for the first quarter of 2011 dropped significantly from $4.17 to $1.54 per share.

Goldman currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock. Goldman’s closest peer – Morgan Stanley (MS) retains a Zacks #5 Rank (a short-term Strong Sell rating).