Goldman Sachs’ stock (NYSE: GS) has lost roughly 3% YTD as compared to the 17% drop in the S&P500 index over the same period. Further, at its current price of $382 per share, it is trading just below its fair value of $385 – Trefis’ estimate for Goldman Sachs’ valuation. The investment bank posted better-than-expected results in the third quarter of 2022, beating both revenues and earnings estimates. The total revenues decreased 12% y-o-y to $11.98 billion, mainly driven by a 57% drop in investment banking and a 20% decline in the asset management units. While the investment banking business suffered due to lower underwriting and M&A deal volumes, the asset management was down due to lower revenues in the equity investments category. That said, the top line was somewhat supported by an 11% rise in sales & trading and an 18% increase in the consumer & wealth management businesses. The sales & trading benefited from a 41% growth in the FICC (fixed income, currency & commodity) trading revenues. On the expense front, total noninterest expenses as a % of revenues increased in the quarter, along with provisions for credit losses. Overall, the adjusted net income fell by 44% y-o-y to $ 2.96 billion.
The bank’s top line declined by 21% y-o-y to $36.8 billion in the first nine months of 2022. It was because of a 45% drop in investment banking and a 71% decrease in asset management revenues. However, the effect was partially offset by a 14% increase in sales & trading and a 21% growth in the consumer & wealth management divisions. Altogether, the adjusted net income decreased 45% y-o-y to $9.6 billion over the same period. It was due to an unfavorable build-up in provisions figure and higher expenses as a % of revenues.
Moving forward, we expect the same trend to continue in the fourth quarter. All in all, Goldman Sachs revenues are estimated to remain around $48.5 billion in FY2022. Additionally, GS’ adjusted net income margin, which improved from 20% to 35.6% in 2021, is likely to decrease to 25% in the year, leading to an adjusted net income of $11.95 billion. This coupled with an annual EPS of $34.30 and a P/E multiple of just above 11x will lead to a valuation of $385.
|S&P 500 Return||2%||-17%||77%|
|Trefis Multi-Strategy Portfolio||5%||-18%||223%|
 Month-to-date and year-to-date as of 11/15/2022
 Cumulative total returns since the end of 2016