How the power players do it - by Fortune senior editor at large Patricia Sellers

Meredith Whitney's Goldman Sachs call

July 14, 2009: 2:39 PM ET

She still has her mojo.

A lot of people were surprised, even confounded, when analyst Meredith Whitney, the bear of all bears, stuck her neck out early yesterday and put forth the Street's highest estimates for Goldman Sachs' (GS) second-quarter profits. Whitney predicted that Goldman would report $4.65 a share. The consensus estimate was $3.48. Goldman announced this morning that it earned $4.93.

And you'd think the stock would pop on that news, wouldn't you? Attesting to Whitney's mojo (which, as I noted in yesterday's Postcard, we'd been questioning), CNBC's Jim Cramer wrote this morning that "Meredith Whitney pretty much ruined the Goldman Sachs trade" by putting that super-high estimate ahead of the earnings call. Goldman shares rose seven points yesterday to nearly $150. It's down slightly  today. "Whitney wrecked it," Cramer griped about the do-nothing stock.

Whitney thinks Goldman stock has plenty of room to run. Ever bearish on the economy, she's convinced that Goldman, above all financial-services firms, will benefit from global woes, which are rising. In yesterday's report, she says that Goldman will make out big on the surging muni market. Goldman is a major underwriter of muni debt--albeit behind Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), and Morgan Stanley (MS)--and the No. 1 book-runner of Build America Bonds. These are a new type of municipal bond, part of the Obama administration's $787 billion stimulus plan. Cities, states, universities and government entities use BABs, as they're known, to finance infrastructure projects. This is a potential $50 billion annual market, Whitney says, and Goldman currently holds a 25% share.

Meanwhile, state budget gaps are sure to balloon as tax revenues fall faster than expected--and  unemployment rises to 13%, Whitney predicts. Goldman is poised to benefit from the widespread pain. With her upgrade yesterday (making Goldman her only "Buy" as well as her sole upgrade since she quit Oppenheimer in February), Whitney lifted her estimate of Goldman's full-year 2009 profits to $16.59 per share, from $10.80. In 2010, she expects Goldman to earn $19.65 a share. That's substantially above the Wall Street consensus.

Her price target that accompanies her new "Buy" recommendation on Goldman: $186. That's 25% above the current price. One Postcards reader, Matt in Baltimore, commented yesterday that it "would have been impressive if she had declared a 'buy' rating for Goldman back when it bottomed out at 52$ a share in Nov. 2008." True. Whitney said precisely that yesterday morning on CNBC's Squawk Box, adding that she's only recently gained clarity on how Goldman is making money--the fixed-income bonanza. And once other analysts recognize it too, they'll raise estimates.

So there she stands, a bull on Goldman Sachs, though still in bear clothing. Whitney's husband, meanwhile, has been running with the bulls, literally. Six-foot-seven, 260-pound John Layfield, best known as onetime pro-wrestling champion JBL on WWE Monday Night Raw, is in Pamplona, Spain. While she was shaking up the market, he was doing the famous run.PATTIE signature Another kind of mojo entirely.

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About This Author
Pattie Sellers
Pattie Sellers
Senior Editor at Large, Fortune
Executive Director of MPW/Live Content, Time Inc.

Pattie Sellers has written more than 20 Fortune cover stories including "Marissa Mayer: Ready to Rumble at Yahoo," "Muhtar Kent's New Coke," "Oprah's Next Act", "The $100 Billion Woman" (Melinda Gates), and "Gone with the Wind" (Ted Turner). She co-founded Fortune Most Powerful Women and oversees the Fortune MPW Summit, the preeminent gathering of women leaders in business and beyond—and programs such as Fortune MPW Entrepreneurs and the Fortune-U.S. State Department Global Women Leaders Mentoring Partnership. Pattie also develops Live Content across Time Inc. Her blog, Postcards, is about how power players lead and navigate their careers. Pattie won Time Inc.'s prestigious MVP award for her performance in 2012.

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