The Goldman Sachs Group Inc. (GS) earns CFRA’s highest investment recommendation of 5-STARS, or “Strong Buy.” Even in a risk-off environment, given the current stresses in the banking system, we think GS will gain wallet share in the next 12-18 months as markets improve in both investment banking and asset & wealth management, notes analyst Kenneth Leon, in CFRA Research’s flagship newsletter The Outlook.
GS is one of the world's leading investment banking and securities companies, with an unrivaled culture of excellence and talent depth across all businesses. We forecast net revenue of $50.0 billion in 2023 and $52.5 billion in 2024 vs. $47.4 billion in 2022 and the parabolic jump to $59.3 billion in 2021. Following a significant decline for full-year 2022 equity and debt underwriting, including IPOs, we see 5%-6% growth in 2023, with improved comps starting in Q1 2023.
At the Feb. 28 Investor Day, GS management said that it is striving to strengthen client franchise, build durable relationships and revenue in a cyclical business, as well as raise profitability and returns with higher efficiency ratios.
An important area for the firm is fixed income, currency, and commodity trading, known as FICC (31%). It includes interest rate products, credit products, mortgages, currencies, and commodities. Equities (23%) covers equities intermediation and equities financing.
The investment banking unit (16%) serves public and private sector clients around the world. It provides financial advisory services and helps companies raise capital to strengthen and grow their businesses. The Asset & Wealth Management (AWM) segment (28% of 2022 total net revenues) offers a broad array of investment strategies, advice, and planning across all major asset classes to a diverse group of institutions and individuals worldwide, and provides prime brokerage, financing services, and securities lending services.
The Platform Solutions (PS) segment (3% of 2022 total net revenues) includes consumer platforms ($1.2 billion in revenue) and $326 million in transaction retail banking and other fees. PS cumulative losses exceeded $3.7 billion in the last few years.
Our $400 target price is based on a forward P/E of 9.9x our 2024 EPS estimate vs. the 10-year historic average at 10.6x. Our EPS estimates are $35.40 in 2023 and $40.50 in 2024 compared to consensus estimates of $34.30 and $40.70 for the same periods. The shares offered a 3.2% dividend yield at their recent share price. Risks are recession, lower investment banking fees, and weak trading.
Recommended Action: Buy GS.
