Goldman Sachs’ stock (NYSE: GS) has lost roughly 19% YTD as compared to the 16% drop in the S&P500 index over the same period. Further, at its current price of $309 per share, it is trading 21% below its fair value of $392 – Trefis’ estimate for Goldman Sachs’ valuation. The investment bank posted better than expected results in the first quarter, despite a 27% decrease in the net revenues to $12.9 billion. It was because of an 88% drop in asset management and a 36% decline in the investment banking segment. The asset management division suffered due to net losses in equity investments and lower lending and debt investments revenues. Similarly, the investment banking business was down due to lower underwriting income. That said, the negative growth was partially offset by a 21% jump in the consumer & wealth management segment and a 4% rise in the global market revenues. The consumer & wealth management division benefited from higher Assets under Supervision (AuS) and growth in outstanding loan balances. While the global markets witnessed a 21% rise in the FICC (fixed income, currency & commodity) trading revenues, the positive effect was largely eroded by a 15% decline in the equity trading business, limiting the overall segment gains to 4%. Altogether, the adjusted net income fell by 43% y-o-y to $3.8 billion. It was primarily driven by lower revenues, an increase in provisions for credit losses, and higher total expenses as a % of revenues.
The bank’s top line grew 33% y-o-y to $59.3 billion in 2021. While the revenues increased across all the segments, investment banking witnessed a 58% jump, followed by an 87% rise in asset management, and a 25% growth in consumer & wealth management units. The investment banking segment benefited from higher merger & acquisition deal volumes, strong initial public offerings (IPO) activity, and an increase in debt origination activity. Similarly, the asset management revenues were up due to significant growth in equity investments and lending & debt investments income. Further, the growth in consumer & wealth management was driven by higher AuS and improvement in total outstanding loans. On the flip side, the global markets unit posted a modest 4% y-o-y rise. It was due to lower FICC trading revenues, which partially counterbalanced the growth in the equity trading stream. All in all, the adjusted net income increased 137% to $21.15 billion. While the revenue growth was a primary driver of this rise, a favorable decrease in provisions for credit losses and lower expenses as a % of revenues further supported the net income.
The Federal Reserve has so far hiked the interest rates twice in 2022, first in March by 0.25% and then last week by 0.50%. Moreover, we anticipate the interest rates to see multiple positive revisions in the year. It will likely benefit the net interest margin of the bank. That said, the global markets and investment banking revenues are likely to normalize over the subsequent quarters, with a recovery in the economic conditions. Overall, Goldman Sachs revenues are expected to touch $48.4 billion in FY2022. Additionally, GS’ adjusted net income margin, which improved from 20% to 35.6% in 2021, is likely to stabilize at roughly 27% in the year, leading to an adjusted net income of $13.3 billion. This coupled with an annual EPS of $38.67and a P/E multiple of just above 10x will lead to the valuation of $392.
|S&P 500 Return||-3%||-16%||78%|
|Trefis Multi-Strategy Portfolio||-7%||-23%||205%|
 Month-to-date and year-to-date as of 5/10/2022
 Cumulative total returns since the end of 2016