Goldman Sachs’ Shares Have Sizable Upside Potential Despite Expected Pressure On Its Top Line

Per Trefis estimates, Goldman Sachs’ (NYSE: GS) stock is worth $230, which is 15% higher than the current market price. Our price estimate is based on a P/E multiple of 9.3x and an EPS estimate of $24.67 for FY 2019. We have summarized our full-year expectations for Goldman Sachs in our interactive dashboard How Did Goldman Sachs Fare in Q1 2019, And What Can We Expect In 2019? You can modify any of our key drivers to gauge the impact of changes on its valuation. In addition, you will find more Trefis data for Financial Services companies here.

A Quick Look At Goldman’s Sources of Revenue

Goldman Sachs reported $36.6 billion in Total Revenues in FY 2018 (CAGR 2015-2018: 2.7%). This included 4 revenue streams.

• Investment Banking: $7.9 billion in FY 2018 (22% of Total Revenues) – This can be divided into two sub-divisions – Mergers & Acquisitions Advisory, and Equity Underwriting & Debt Origination (e.g. Initial Public Offerings, private placements etc.).
• Institutional Client Services: $13.5 billion in FY 2018 (37% of Total Revenues) – It includes Equity Trading (e.g. market making, trading in equities, equity related products, structures and derivatives) and Fixed Income, Currency and Commodity (FICC) Trading.
• Investment Management: $7.0 billion in FY 2018 (19% of Total Revenues) – This represents Goldman’s asset management arm, which provide individual investors with mutual fund and alternative investment products, and institutional clients with a fully-integrated asset management offering.
• Investing & Lending: $8.2 billion in FY 2018 (23% of Total Revenues) – It represents investing and relationship-lending activities across asset classes, including debt & equity securities, and real estate

Goldman’s Key Revenue Drivers

• Assets under Supervision: Goldman’s Assets under Supervision (AUS) have grown with a CAGR of 7.2% (2015-2018). The strong growth continued in Q1 2019 results with the bank reporting $57 billion in net inflows. We expect this trend to continue in subsequent quarters and push the AUS figure to over $1.6 trillion by the end of 2019.
• Equities Trading Assets: Goldman Sachs saw a significant reduction in the size of its Equities Trading portfolio last year as a result of the slump in equity market valuation in December. With equity market valuation being upbeat over recent months, we expect the size of these assets to by 12% y-o-y to $97.8 billion on the back of improved market conditions.

Goldman’s Outlook For Full Year 2019

• Goldman Sachs is expected to report $36.1 billion in Total Revenues for 2019, which is 1.4% less as compared to 2018. The marginal reduction can be attributed almost entirely to poor securities trading performance in the first quarter
• Institutional Client Services (ICS) is expected to have a 6% decrease in revenues mainly driven by lower market volumes in Equities Trading. However, expected growth of 5% in Investing & Lending would partially offset the impact on the top line.
• Although transaction volumes and incentive fees for the Investment Management division have fallen steadily over recent years, growth in AUS will help revenues for the segment remain largely at the same level as 2018.
• Total Expenses should remain unchanged from the level seen in 2018. However, Net Income is expected to fall by 8.4% y-o-y to $9.6 billion due to decline in total revenues and higher tax rate in 2019.
• However, Goldman Sachs should continue to repurchases billions of dollars’ worth of shares over the year. This should help its EPS figure reach $24.67 for FY 2019.
• Coupled with our forward P/E multiple of 9.3x, this represents a price estimate of $230 – representing a potential upside of 15% for the bank’s stock.

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