Goldman Sachs’ stock (NYSE: GS) has lost roughly 2% YTD as compared to the 17% rise in the S&P500 index over the same period. Further, at its current price of $338 per share, it is trading 6% below its fair value of $361 – Trefis’ estimate for Goldman Sachs’ valuation.
Amid the current financial backdrop, GS stock has shown strong gains of 30% from levels of $265 in early January 2021 to around $340 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. However, the increase in GS stock has been far from consistent. Returns for the stock were 45% in 2021, -10% in 2022, and -2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 (YTD) – indicating that GS underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GS face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
The investment bank outperformed the street estimates in the third quarter of 2023. It posted net revenues of $11.82 billion – a marginal drop, driven by an 8% growth in the equity trading and a 53% jump in the platform solutions segments, more than offset by a 20% decrease in the asset & wealth management and a 6% decline in the FICC (fixed income, currency, & commodity) trading. On the cost front, the operating expenses increased 18% y-o-y in the quarter. Overall, it resulted in a 36% reduction in the adjusted net income to $1.9 billion.
The bank’s top line decreased 5% y-o-y to $34.9 billion in the first nine months of FY 2023. It was primarily due to lower revenues in investment banking (down 17%), FICC trading (down 16%), and asset & wealth management (down 3%), partially offset by an 82% jump in the platform solutions division. Further, the expense figure witnessed an unfavorable increase of 13% y-o-y over the same period. Altogether, the adjusted net income decreased by $37% y-o-y to $6 billion.
Moving forward, we expect the fourth quarter results to be on similar lines. All in all, Goldman Sachs revenues are estimated to touch $43.86 billion in FY2023. Additionally, GS’ adjusted net income margin is likely to decline from 22.7% to around 18%, leading to an adjusted net income of $7.93 billion. This coupled with an annual GAAP EPS of $22.71 and a P/E multiple of just below 16x will lead to a valuation of $361.
|S&P 500 Return||7%||17%||101%|
|Trefis Reinforced Value Portfolio||7%||26%||549%|
 Month-to-date and year-to-date as of 11/16/2023
 Cumulative total returns since the end of 2016