Goldman Sachs Group, Inc. (GS) is known for its top-flight investment banking and asset management services globally. It is the second largest investment bank in the world based on its 2020 revenues. GS is one of the few multinational investment banks that emerged from the Archegos sell-off relatively unscathed.
GS sold approximately $10.50 billion worth Archegos-related shares on March 26, which ultimately triggered the margin call. And thanks to the firm's first mover advantage, it was able to avoid significant losses in exiting its position. Shares of GS have gained 25.5% year-to-date.
Owing to the firm's quick decision and trade settlements during one of the largest margin calls in history, GS delivered record revenues and earnings growth at a time when most major investment banks downgraded their fiscal first quarter outlooks. GS’ net revenues increased 102% year-over-year to $17.70 billion in the first quarter ended March 31, 2021. Both its net income and EPS increased 498% from the same period last year to $6.71 billion and $18.60, respectively.
Here’s what we think could shape GS’ performance in 2021:
Robust Profit Margins
GS’ 88.78% trailing-12-month gross profit margin is 61.5% higher than the industry average 54.99%. Its return on sales of 29.33% is 22% higher than the industry average 24.05%, while its capex/sales of 12.27% is significantly higher than the industry average 2.18%.
Also, the company’s ROE and ROA of 17.04% and 1.16%, respectively, compare favorably with industry averages.
Impressive Financial Outlook
A $9.42 consensus EPS estimate for the current quarter ending June 2021, represents a 1,677.4% rise year-over-year. Analysts expect GS’ annual earnings to rise 80.6% from the same period last year to $44.69 per share in its fiscal year 2021. Furthermore, the firm has an impressive earnings surprise history; it beat the Street EPS estimates in three of the trailing four quarters.
GS’ revenue is expected to climb 22.5% from its year-ago value to $11.95 billion in its fiscal second quarter. Its annual revenue in the current year is expected to improve 12.6% year-over-year to $50.16 billion.
Trading at a Discount
In terms of non-GAAP forward P/E, GS is currently trading at 7.45x, which is 38.8% lower than the industry average 12.19x. The company’s 0.50 non-GAAP forward PEG ratio is 61% lower than the industry average 1.27.
Also, GS’ forward price/sales multiple of 2.35 compares favorably with the industry average 3.14.
Consensus Rating and Price Target Indicate Potential Upside
Of 15 Wall Street analysts that rated the stock, nine rated it Buy, five rated it Hold, and one rated it Sell. GS has a $390.07 median 12-month price target, which indicates a potential 15.6% upside. The stock’s price target forecast ranges from a high of $497 to a low of $330.
POWR Ratings Reflect Rosy Prospects
GS has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GS has a B grade for Value and Sentiment. These grades are justified given the company’s lower-than-industry valuation and favorable analyst sentiment.
Among 24 stocks in the A-rated Investment Brokerage industry, GS is ranked #11. In total, we rate GS on eight different levels. Beyond what we’ve stated above, one can view GS Ratings for Momentum, Quality, Stability, and Growth here.
Click here to view the top-rated stocks in the Investment Brokerage industry.
Bottom Line
Biden’s proposed capital tax hike, announced yesterday, caused major banking stocks and the Dow Jones Industrial Average to decline. However, Wall Street expects the tax hike to be much lower than what was previously anticipated. This reflection caused banking stocks to reverse some of their losses. GS has gained 2.4% since yesterday. Also, with the U.S. Congress expected to pass a scaled-back tax increase with bi-partisan support, GS stock should grow on par with analyst expectations.
GS shares were trading at $339.13 per share on Friday afternoon, up $8.28 (+2.50%). Year-to-date, GS has gained 29.10%, versus a 11.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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