Why Amazon-Whole Foods is Good For Goldman Sachs


Ever since Amazon.com (AMZN) announced that it had agreed to buyWhole Foods Market (WFM) on Friday, we've been inundated with notes and stories about who gets hurt by the merger. Grocers. Food suppliers. Pharmacies. The list goes on an on. But there's a potential winner as well: Investment banks, particularity Goldman Sachs (GS) and Morgan Stanley (MS).

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That's the claim made by Macquarie's David Konrad and team, who argue that the potential for big mergers and acquisitions have the potential to juice investment bank earnings. They explain:

The market appeared to be caught off guard by Amazon's announced transformational acquisition of Whole Foods. Moreover, we believe Board rooms across several markets may have also been caught off guard and may quickly need to react, as this deal is likely to accelerate changes in more than one industry. Although corporate lending and capital markets have been below expectations thus far in 2017 largely due to political uncertainty, we believe deals such as the Amazon acquisition may cause increased activity given companies may need to react strategically despite uncertainty in Washington.

We like OP rated GS and MS to play the theme of improved M&A, as both companies hold leading global share and M&A accounts for a larger percentage of revenues than larger universal banks. Given the recent underperformance in its shares, we find GS particularly interesting, as it advised Amazon and is leading its debt deal. GS is currently trading at a modest discount on TBV (1.28x vs. 1.40x) and on 2018e (11.2x vs. 11.8x).

Shares of Goldman Sachs have fallen 0.7% to $224.60 at 10:00 a.m. today, while Morgan Stanley has dropped 0.9% to $45.30. Amazon.com has ticked up 0.1% to $996.02, and Whole Foods Market is off 0.6% at $42.95.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , US Markets


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