Rare bullish call from Meredith Whitney - Buy Goldman

Meredith Whitney earned as a superstar last year being the first person to call for a dividend cut on Citigroup before the rest did. After being bearish on financial for a while, in a very rare call, she upgraded Goldman Sachs to a buy. Unfortunately it was not for a good reason.

NEW YORK (WSJ-Dow Jones)--Goldman Sachs Group Inc. (GS) will benefit from being a key player in a "tsunami of debt issuance" by governments as they try to fill gaps in underfunded budgets, financial analyst Meredith Whitney said Monday in an upgrade of Goldman to "buy."

Whitney predicted Goldman Sachs would post second quarter results Tuesday above Street estimates - she expects earnings of $4.65 a share, compared with the average analyst estimate of $3.48, according to estimates provided by Thomson Reuters. She set her 12-month price target on Goldman shares to $186.

Shares of Goldman Sachs rose 3.4% in recent premarket trading to $146.73.

A bullish call from Whitney is rare; she gained renown during the financial crisis for bearish calls on the stocks of large banks that were initially unpopular but ultimately correct.

However, Whitney said her bullish view of Goldman is rooted in her overall bearish outlook for the U.S. economy and other U.S. financial companies. While Goldman has made most of its money in the past through a focus on equity markets, Whitney said during the next two years they will shift their focus to the government debt markets, facilitating new issuance from local, state, federal and sovereign governments as they try to raise money to fill budget gaps.

She predicted that sovereign and municipal debt markets will grow more than 20% over the next 18% months, while U.S. corporate debt will be about 60% of its level during the last three years.

Since several key players have left the market because of the financial crisis, Goldman will take market share and become the key player, she said.