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The Goldman Sachs Group, Inc. (GS - Free Report) remains well-positioned for organic growth, steady capital-deployment activities and business diversification. However, litigation issues, high dependence on overseas revenues and the rising cost base remain concerns.
GS currently carries a Zacks Rank #3 (Hold). The stock's decline of 18.8% has been wider than the industry's fall of 9.9% in the past six months.
Image Source: Zacks Investment Research
While overall revenues were affected by volatile market conditions over the last few quarters, Goldman remains well positioned for growth, given its strong investment banking (IB) operations and a solid client franchise. IB revenues witnessed a four-year (2018-2021) compound annual growth rate (CAGR) of 22.1%, with some annual volatility of underwriting and advisory business. Record IB revenues in 2021 were witnessed on the back of stellar deal-making activities and strong equity markets. These, in turn, are likely to help the company capitalize on the improving environment.
The key source of Goldman’s earnings stability is its business diversification. Within traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks, which exited some of these areas. Goldman has been undertaking initiatives for a while to boost its business by launching a digital consumer lending platform and an automated wealth-management platform.
Driven by a solid capital position, Goldman consistently enhanced its shareholder value with steady capital-deployment activities. GS announced a dividend hike by 60% to $2 per share in July 2021 and has maintained the same amount ever since.
Following the announcement of the second-round of 2020 stress test results, GS resumed share repurchases in first-quarter 2021, which were suspended following the coronavirus crisis in 2020. Last year, Goldman returned $7.49 billion of capital to its common shareholders. This included share repurchases worth $5.20 billion and common stock dividends of 2.29 billion. This not only reflects GS’s commitment to return value to its shareholders but also its healthy position to endure severe economic downturns.
Nonetheless, Goldman’s bottom line has been affected by its rising cost base in the past few years. Expenses recorded a four-year CAGR of 10.8% in 2021 due to higher compensation, technology costs and professional fees. Through 2021, GS realized $1-billion expense efficiencies of the announced $1.3-billion. Nevertheless, investments in technology and a rise in transaction-based expenses during periods of higher client activity will keep the expense trend volatile in the upcoming period.
Goldman has high dependence on overseas revenues as reflected in the last few years. A number of risks stemming from an unfavorable regulatory and political environment, adverse foreign-exchange fluctuations and the muted performance of the regional economy might hurt its top line.
Though Goldman settled certain litigations related to the sale of risky mortgage-backed securities, many of the cases are yet to be resolved. All these are expected to induce elevated expenses and litigation provisions in the near term.
Over the past year, shares of First Business have jumped 48%, whereas the stocks of UBS and PCB have rallied 10.9% and 60.9%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.
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Diversification Supports Goldman (GS), Cost Woes Prevail
The Goldman Sachs Group, Inc. (GS - Free Report) remains well-positioned for organic growth, steady capital-deployment activities and business diversification. However, litigation issues, high dependence on overseas revenues and the rising cost base remain concerns.
GS currently carries a Zacks Rank #3 (Hold). The stock's decline of 18.8% has been wider than the industry's fall of 9.9% in the past six months.
Image Source: Zacks Investment Research
While overall revenues were affected by volatile market conditions over the last few quarters, Goldman remains well positioned for growth, given its strong investment banking (IB) operations and a solid client franchise. IB revenues witnessed a four-year (2018-2021) compound annual growth rate (CAGR) of 22.1%, with some annual volatility of underwriting and advisory business. Record IB revenues in 2021 were witnessed on the back of stellar deal-making activities and strong equity markets. These, in turn, are likely to help the company capitalize on the improving environment.
The key source of Goldman’s earnings stability is its business diversification. Within traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks, which exited some of these areas. Goldman has been undertaking initiatives for a while to boost its business by launching a digital consumer lending platform and an automated wealth-management platform.
Driven by a solid capital position, Goldman consistently enhanced its shareholder value with steady capital-deployment activities. GS announced a dividend hike by 60% to $2 per share in July 2021 and has maintained the same amount ever since.
Following the announcement of the second-round of 2020 stress test results, GS resumed share repurchases in first-quarter 2021, which were suspended following the coronavirus crisis in 2020. Last year, Goldman returned $7.49 billion of capital to its common shareholders. This included share repurchases worth $5.20 billion and common stock dividends of 2.29 billion. This not only reflects GS’s commitment to return value to its shareholders but also its healthy position to endure severe economic downturns.
Nonetheless, Goldman’s bottom line has been affected by its rising cost base in the past few years. Expenses recorded a four-year CAGR of 10.8% in 2021 due to higher compensation, technology costs and professional fees. Through 2021, GS realized $1-billion expense efficiencies of the announced $1.3-billion. Nevertheless, investments in technology and a rise in transaction-based expenses during periods of higher client activity will keep the expense trend volatile in the upcoming period.
Goldman has high dependence on overseas revenues as reflected in the last few years. A number of risks stemming from an unfavorable regulatory and political environment, adverse foreign-exchange fluctuations and the muted performance of the regional economy might hurt its top line.
Though Goldman settled certain litigations related to the sale of risky mortgage-backed securities, many of the cases are yet to be resolved. All these are expected to induce elevated expenses and litigation provisions in the near term.
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , UBS Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both FBIZ and UBS sport a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of First Business have jumped 48%, whereas the stocks of UBS and PCB have rallied 10.9% and 60.9%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.