Goldman Sachs have an interesting side note in their ‘US Weekly Kickstart’ client briefing… a section on “Conversations we are having with clients: M&A bid premiums and cash considerations”.
Goldman’s note:
- Despite the dismal -2.9% GDP growth in 1Q 2014, CEO Confidence has surged and stands above the 38-year average
- Improved corporate confidence was the top theme we identified in our S&P 500 Beige Book … in early May that reviewed the transcripts of 1Q conference calls
- Our economists estimate US economic activity in the current quarter has accelerated to an annualized pace of roughly 3.5%
- They expect GDP growth will remain above 3% during the rest of 2014 and 2015
- Improved confidence and stronger data will prompt firms to pursue growth initiatives
Also:
- US merger announcements during 1H 2014 have surged by roughly 50 to $744 billion
- If deal-making continues at the current trend, full-year 2014 domestic M&A announcements would reach $1.5 trillion, the second-highest level in history, trailing only the LBO-fueled peak of 2007.
- The typical stock trades at 17x forward earnings which is expensive when viewed through the lens of history
- We expect the US stock market will continue its upward trajectory
- At 1960, the S&P 500 index currently trades at the high end of a range of fair value. At the stock level, we recommend portfolio managers focus on value instead of growth. Firms with a high degree of operating leverage should outperform as the US economy improves during 2H 2014 and 2015
