Goldman Sachs’ stock (NYSE: GS) has lost roughly 9% YTD as compared to the 12% drop in the S&P500 index over the same period. Further, at its current price of $346 per share, it is trading 13% below its fair value of $399 – Trefis’ estimate for Goldman Sachs’ valuation. While the investment bank topped the consensus estimates in the second quarter, the net revenues were down 23% y-o-y to $11.86 billion. It was driven by a 79% drop in the net revenues in the asset management unit, followed by a 41% decline in the investment banking division. The asset management suffered due to net losses in equity investments and lower lending and debt investment revenues. Similarly, the investment banking segment struggled due to lower underwriting revenues driven by a significant decline in deal volumes. On the flip side, the above negative growth was somewhat offset by a 32% rise in the global markets and a 25% increase in the consumer & wealth management segments. On the expense front, the firm’s noninterest expenses as a % of revenues increased from 56% to 65% in the quarter. Further, the provisions for credit losses increased from -$92 million to $667 million. Overall, it translated into an adjusted net income of $2.8 billion – down 48% y-o-y.
The bank’s top line improved 33% y-o-y to $59.3 billion in 2021, driven by growth in all segments. However, the net revenues for the first half of 2022 decreased 25% y-o-y to $24.8 billion. The negative growth was mainly due to a 38% decline in investment banking and an 83% decrease in asset management. While the consumer & wealth management and global markets units did witness growth, it was not enough to overshadow the weak revenues in other units. Further, the adjusted net income for the first half of 2022 was down 45% y-o-y to $6.6 billion. It was because of an unfavorable build-up in provisions figure and higher expenses as a % of revenues.
Moving forward, we expect the above trend to continue in the subsequent quarters. Overall, Goldman Sachs revenues are estimated to remain around $47.3 billion in FY2022. Additionally, GS’ adjusted net income margin, which improved from 20% to 35.6% in 2021, is likely to normalize around 25% in the year, leading to an adjusted net income of $11.8 billion. This coupled with an annual EPS of $34.07 and a P/E multiple of just below 12x will lead to the valuation of $399.
With inflation rising and the Fed raising interest rates, Goldman Sachs has fallen 9% this year. Can it drop more? See how low can Goldman Sachs stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||2%||-12%||88%|
|Trefis Multi-Strategy Portfolio||2%||-12%||254%|
 Month-to-date and year-to-date as of 8/26/2022
 Cumulative total returns since the end of 2016