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Goldman Sachs (GS) Q2 Result Out: Should You Make a Bet Now?
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The Goldman Sachs Group, Inc. (GS - Free Report) , which released its second-quarter 2024 results on Jul 15, 2024, posted a remarkable rebound in its investment banking (IB) business after witnessing a decline in the past two years. Driven by robust performance, the company’s profits jumped 61% in the first six months of 2024.
Since the release of its quarterly results, the stock has moved up nearly 1.5% to $486.70. Year to date, GS has appreciated 27.8% compared with the S&P 500 Index’s growth of 15.1%. In 2023, the stock rose 6.8%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for GS. The stock trades above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in the company's financial health and prospects.
50-Day & 200-day Moving Average
Image Source: Zacks Investment Research
The surge in GS stock has left many investors considering whether they've missed an investment opportunity or still have time to take a position.
What’s Aiding GS Stock Growth?
Refocus on its Wall Street operations: Goldman is refocusing on its core strengths of IB and trading operations through restructuring initiatives and opportunistic acquisitions. In 2022, GS acquired NextCapital and Dutch asset manager and NN Investment Partners from NN Group N.V., strengthening its capital markets business. These initiatives are likely to boost the company’s presence in overseas markets while scaling back its consumer banking footprint.
The company’s focus on its Wall Street operations is paying off. In 2022 and 2023, its IB revenues declined by 47.9% and 15.5%, respectively, while in the first half of 2024, the metric soared nearly 27% from the first half of 2023. The upside was driven by the bounce back in global mergers and acquisitions (M&As), which led to a remarkable improvement in the industry-wide deal value and volume.
The company maintains its long-standing #1 rank in announced and completed M&As and ranked #2 in equity underwriting. A solid financial performance of the corporates, buoyant equity markets and expected rate cuts this year, along with Goldman’s leadership position, lent it an edge over its peers.
JPMorgan’s (JPM - Free Report) IB business also rebounded. Its total IB fees in the second quarter of 2024 soared 50% year over year. Likewise, Morgan Stanley’s (MS - Free Report) IB fees surged 51%.
During the second-quarter earnings conference call, top executives noted that the company is still in the early innings of the capital markets and M&A recovery. Though certain transaction volumes are still well below their 10-year averages, the company remains well-positioned to benefit from a continued resurgence in the capital markets activities.
Breaking the Trend with NII Growth: The current high interest rate environment acts as a boon for GS. In second-quarter 2024, the company recorded higher net interest income (NII) than the year-ago quarter’s figure.
The Federal Reserve chairman, Jerome Powell, signaled that the central bank is inching closer to cutting interest rates and cited recent inflation readings and the cooling job market as the primary reasons. This will further lower/stabilize funding costs. Thus, Goldman is expected to benefit from such a favorable development.
Expansion in Private Equity Credit Line: The company plans to ramp up its lending services to private equity and asset managers and also intends to expand internationally. This stemmed as a part of its efforts to fill the void left by the turmoil seen at regional banks in 2023 and the collapse of Credit Suisse.
The private equity market has a strong potential to grow as private equity deals are expected to rise, driven by record-high fundraising. These loans are classified as short-term, typically secured by the assets of the borrowing firms. Hence, these have a lesser risk attached to them. Goldman’s focus on the private equity market is a strategic fit.
Goldman Sachs Asset Management, a unit of GS, intends to expand its private credit portfolio to $300 billion in five years from the current $130 billion. Once the company strengthens its operations in the United States, it plans to expand its lending business into Europe, the U.K. and Asia.
Impressive Capital Distribution: Goldman rewards its shareholders handsomely. Following the 2024 stress test result, the company increased its quarterly dividend by 9% to $3 per share. In the past five years, the company hiked dividends five times with an annualized growth rate of 24.42%. Currently, its payout ratio sits at 35% of earnings.
Similarly, after clearing this year’s stress test, MS announced a quarterly cash dividend of 92.5 cents, marking an 8.8% hike from the prior payout. JPM announced plans to hike dividends by 8.7% to $1.25.
GS has a share repurchase program in place. In the second quarter, the company repurchased $3.5 billion of shares. Management stated that given the higher-than-expected stress capital buffer (SCB) requirement, the company plans moderate buybacks versus the levels of the second quarter.
In terms of liquidity position, as of Jun 30, 2024, GS cash and cash equivalents were $206 billion. The company has only $77 billion of near-term borrowings as of the same date.
The company’s capital position remains strong. Goldman plans to return the excess capital to its shareholders prudently.
Analysts Shows Mixed Sentiment
Over the past seven days, the Zacks Consensus Estimate for 2024 earnings has moved downward, while 2025 earnings have moved upward.
Estimate Revision Trend
Image Source: Zacks Investment Research
Valuation Stretched
From a valuation standpoint, Goldman appears somewhat expensive relative to the industry. The company is currently trading at a forward 12-month P/E multiple of 12.44X, above the industry average of 10.08X.
Although Goldman's solid fundamentals justify its price, investors may face negative risks if the company's future performance fails to match expectations.
A challenging environment characterized by an economic slowdown, rising costs, and greater SCB standards might stymie GS' growth trajectory.
Price-to-Earnings (forward 12 Months)
Image Source: Zacks Investment Research
Still Don’t Rush to Buy GS Stock?
While Goldman Sachs achieved milestones with its recent quarterly numbers reaching new highs, caution is warranted for prospective investors. Its efforts to refocus on core capital markets business and expansion in private credit lines provide a solid base for future growth.
On the other hand, the interest rate cut path, escalating expenses, higher regulatory capital requirements, and an uncertain macroeconomic backdrop are expected to influence Goldman’s financial performance greatly.
Also, GS' stretched valuation relative to the industry raises concerns about sustainability, especially amid economic uncertainties and other challenges. Investors should consider these factors carefully and evaluate their risk tolerance before buying this Zacks Rank #3 (Hold) stock.
Image: Bigstock
Goldman Sachs (GS) Q2 Result Out: Should You Make a Bet Now?
The Goldman Sachs Group, Inc. (GS - Free Report) , which released its second-quarter 2024 results on Jul 15, 2024, posted a remarkable rebound in its investment banking (IB) business after witnessing a decline in the past two years. Driven by robust performance, the company’s profits jumped 61% in the first six months of 2024.
Since the release of its quarterly results, the stock has moved up nearly 1.5% to $486.70. Year to date, GS has appreciated 27.8% compared with the S&P 500 Index’s growth of 15.1%. In 2023, the stock rose 6.8%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for GS. The stock trades above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in the company's financial health and prospects.
50-Day & 200-day Moving Average
The surge in GS stock has left many investors considering whether they've missed an investment opportunity or still have time to take a position.
What’s Aiding GS Stock Growth?
Refocus on its Wall Street operations: Goldman is refocusing on its core strengths of IB and trading operations through restructuring initiatives and opportunistic acquisitions. In 2022, GS acquired NextCapital and Dutch asset manager and NN Investment Partners from NN Group N.V., strengthening its capital markets business. These initiatives are likely to boost the company’s presence in overseas markets while scaling back its consumer banking footprint.
The company’s focus on its Wall Street operations is paying off. In 2022 and 2023, its IB revenues declined by 47.9% and 15.5%, respectively, while in the first half of 2024, the metric soared nearly 27% from the first half of 2023. The upside was driven by the bounce back in global mergers and acquisitions (M&As), which led to a remarkable improvement in the industry-wide deal value and volume.
The company maintains its long-standing #1 rank in announced and completed M&As and ranked #2 in equity underwriting. A solid financial performance of the corporates, buoyant equity markets and expected rate cuts this year, along with Goldman’s leadership position, lent it an edge over its peers.
JPMorgan’s (JPM - Free Report) IB business also rebounded. Its total IB fees in the second quarter of 2024 soared 50% year over year. Likewise, Morgan Stanley’s (MS - Free Report) IB fees surged 51%.
During the second-quarter earnings conference call, top executives noted that the company is still in the early innings of the capital markets and M&A recovery. Though certain transaction volumes are still well below their 10-year averages, the company remains well-positioned to benefit from a continued resurgence in the capital markets activities.
Breaking the Trend with NII Growth: The current high interest rate environment acts as a boon for GS. In second-quarter 2024, the company recorded higher net interest income (NII) than the year-ago quarter’s figure.
The Federal Reserve chairman, Jerome Powell, signaled that the central bank is inching closer to cutting interest rates and cited recent inflation readings and the cooling job market as the primary reasons. This will further lower/stabilize funding costs. Thus, Goldman is expected to benefit from such a favorable development.
Expansion in Private Equity Credit Line: The company plans to ramp up its lending services to private equity and asset managers and also intends to expand internationally. This stemmed as a part of its efforts to fill the void left by the turmoil seen at regional banks in 2023 and the collapse of Credit Suisse.
The private equity market has a strong potential to grow as private equity deals are expected to rise, driven by record-high fundraising. These loans are classified as short-term, typically secured by the assets of the borrowing firms. Hence, these have a lesser risk attached to them. Goldman’s focus on the private equity market is a strategic fit.
Goldman Sachs Asset Management, a unit of GS, intends to expand its private credit portfolio to $300 billion in five years from the current $130 billion. Once the company strengthens its operations in the United States, it plans to expand its lending business into Europe, the U.K. and Asia.
Impressive Capital Distribution: Goldman rewards its shareholders handsomely. Following the 2024 stress test result, the company increased its quarterly dividend by 9% to $3 per share. In the past five years, the company hiked dividends five times with an annualized growth rate of 24.42%. Currently, its payout ratio sits at 35% of earnings.
Similarly, after clearing this year’s stress test, MS announced a quarterly cash dividend of 92.5 cents, marking an 8.8% hike from the prior payout. JPM announced plans to hike dividends by 8.7% to $1.25.
GS has a share repurchase program in place. In the second quarter, the company repurchased $3.5 billion of shares. Management stated that given the higher-than-expected stress capital buffer (SCB) requirement, the company plans moderate buybacks versus the levels of the second quarter.
In terms of liquidity position, as of Jun 30, 2024, GS cash and cash equivalents were $206 billion. The company has only $77 billion of near-term borrowings as of the same date.
The company’s capital position remains strong. Goldman plans to return the excess capital to its shareholders prudently.
Analysts Shows Mixed Sentiment
Over the past seven days, the Zacks Consensus Estimate for 2024 earnings has moved downward, while 2025 earnings have moved upward.
Estimate Revision Trend
Valuation Stretched
From a valuation standpoint, Goldman appears somewhat expensive relative to the industry. The company is currently trading at a forward 12-month P/E multiple of 12.44X, above the industry average of 10.08X.
Although Goldman's solid fundamentals justify its price, investors may face negative risks if the company's future performance fails to match expectations.
A challenging environment characterized by an economic slowdown, rising costs, and greater SCB standards might stymie GS' growth trajectory.
Price-to-Earnings (forward 12 Months)
Still Don’t Rush to Buy GS Stock?
While Goldman Sachs achieved milestones with its recent quarterly numbers reaching new highs, caution is warranted for prospective investors. Its efforts to refocus on core capital markets business and expansion in private credit lines provide a solid base for future growth.
On the other hand, the interest rate cut path, escalating expenses, higher regulatory capital requirements, and an uncertain macroeconomic backdrop are expected to influence Goldman’s financial performance greatly.
Also, GS' stretched valuation relative to the industry raises concerns about sustainability, especially amid economic uncertainties and other challenges. Investors should consider these factors carefully and evaluate their risk tolerance before buying this Zacks Rank #3 (Hold) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.