Goldman Sachs’ stock (NYSE: GS) has lost approximately 11% YTD as compared to the 5% drop in the S&P500 index over the same period. Further, at its current price of $339 per share, it is trading 19% below its fair value of $416 – Trefis’ estimate for Goldman Sachs’ valuation. The investment bank posted mixed results in the fourth quarter, beating the consensus estimates of revenues but missing the earnings expectations. It reported total revenues of $12.6 billion – an 8% increase as compared to the year-ago period. This could be attributed to a 45% growth in investment banking revenues, followed by a 19% jump in the consumer & wealth management segment. However, the positive effect was somewhat offset by a 10% y-o-y drop in asset management and a 7% decrease in global markets revenues.
Although the top-line increased in the fourth quarter, still the adjusted net income decreased 13% y-o-y to $3.8 billion. This was due to an increase in total noninterest expenses as a % of revenues from 50% to 58%, primarily driven by higher compensation costs. It resulted in a quarterly EPS of $10.81 – down 11% y-o-y.
The company’s top-line increased 33% y-o-y to $59.3 billion in 2021. It was mainly because of a 58% rise in the investment banking business, followed by an 87% jump in the asset management segment. Further, the consumer & wealth management unit posted a growth of 25% in the year. While the equities financing revenues rose 52% y-o-y, the growth was largely offset by a 9% drop in the FICC (fixed income, currency, & commodity) trading. This limited the global market’s revenue growth to 4%. In addition to the revenue growth, the bank’s provisions for credit losses decreased from $3.1 billion to $357 million in the year. Further, the noninterest expenses as a % of revenues declined from 65% to 54%. Overall, this translated into a 137% y-o-y improvement in the adjusted net income to $21.15 billion.
The Federal Reserve is expected to hike the interest rates multiple times in FY2022. This will likely benefit the net interest income of the bank. That said, the global markets and investment banking revenues are likely to normalize, with improvement in the economic conditions. Altogether, Goldman Sachs revenues are expected to touch $48.6 billion in FY2022. Additionally, GS’ adjusted net income margin is expected to decrease in the year, from 35.6% to around 29%, leading to an adjusted net income of $14.1 billion. This coupled with an annual EPS of $41.32 and a P/E multiple of just above 10x will lead to the valuation of $416.
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|S&P 500 Return||2%||-6%||99%|
|Trefis MS Portfolio Return||1%||-9%||258%|
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