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Goldman Sachs (GS) Up 24.2% YTD: What are the Reasons?
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Shares of Goldman Sachs (GS - Free Report) have appreciated 24.2% year to date compared with the industry’s growth of 8.1%. The stock has outperformed the S&P 500 Index, which increased 11.1% in the same frame.
Image Source: Zacks Investment Research
GS’ impressive rebound in the Investment Banking (IB) business is supporting its growth trajectory. Its efforts to expand in the private equity market also look encouraging.
Further, analysts are bullish on this Zacks Rank #3 (Hold) stock. In the past month, the Zacks Consensus Estimate for earnings of $36.74 and $41.40 per share has moved 2% and 3% upward for 2024 and 2025, respectively. These indicate a surge of 60.7% for this year and 12.7% for 2025.
Now, let’s discuss some key factors that are likely to provide further impetus to GS stock.
Refocus on IB and Trading Operations
Goldman Sachs 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 its presence in overseas markets while scaling back consumer banking footprint.
In 2022 and 2023, IB revenues declined 47.9% and 15.5%, respectively. In the first half of 2024, the metric soared nearly 27% from first-half 2023 levels. 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.
Strong Balance Sheet Position
Goldman Sachs has a solid balance sheet position. As of Jun 30, 2024, cash and cash equivalents were $206 billion. As of the same date, total unsecured debt (comprising long-term and short-term borrowings) was $312 billion. Out of this, only $77 billion were near-term borrowings. The company maintains investment-grade long-term debt ratings of A/A2/BBB+ and a stable outlook from Fitch Ratings, Moody’s Investors Service and Standard & Poor's, respectively. Thus, its decent cash levels and solid credit profile indicate that it will likely be able to continue to meet debt obligations despite economic slowdowns.
Expanding Foothold in Private Equity Market
Goldman Sachs plans to ramp up its lending services to private equity and asset managers and 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.
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.
Capital Distribution
Goldman Sachs’ capital distribution activities have been impressive over the years. Following the clearance of the 2024 stress test, the company announced its plans to reduce repurchase activities in the upcoming quarters due to higher-than-expected Stress Capital Buffer (SCB) requirements. The company will dynamically deploy capital to support its client franchise while targeting a prudent buffer above the new requirement. This approach aims to balance the business’ needs with regulatory expectations and maintain financial stability.
In July 2024, the company’s board of directors approved a 9.1% increase in the common stock dividend to $3 per share starting from third-quarter 2024. Given its decent liquidity, such capital distribution activities seem sustainable. This is likely to stoke investors’ confidence in the stock.
Image: Bigstock
Goldman Sachs (GS) Up 24.2% YTD: What are the Reasons?
Shares of Goldman Sachs (GS - Free Report) have appreciated 24.2% year to date compared with the industry’s growth of 8.1%. The stock has outperformed the S&P 500 Index, which increased 11.1% in the same frame.
GS’ impressive rebound in the Investment Banking (IB) business is supporting its growth trajectory. Its efforts to expand in the private equity market also look encouraging.
Further, analysts are bullish on this Zacks Rank #3 (Hold) stock. In the past month, the Zacks Consensus Estimate for earnings of $36.74 and $41.40 per share has moved 2% and 3% upward for 2024 and 2025, respectively. These indicate a surge of 60.7% for this year and 12.7% for 2025.
Now, let’s discuss some key factors that are likely to provide further impetus to GS stock.
Refocus on IB and Trading Operations
Goldman Sachs 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 its presence in overseas markets while scaling back consumer banking footprint.
In 2022 and 2023, IB revenues declined 47.9% and 15.5%, respectively. In the first half of 2024, the metric soared nearly 27% from first-half 2023 levels. 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.
Strong Balance Sheet Position
Goldman Sachs has a solid balance sheet position. As of Jun 30, 2024, cash and cash equivalents were $206 billion. As of the same date, total unsecured debt (comprising long-term and short-term borrowings) was $312 billion. Out of this, only $77 billion were near-term borrowings. The company maintains investment-grade long-term debt ratings of A/A2/BBB+ and a stable outlook from Fitch Ratings, Moody’s Investors Service and Standard & Poor's, respectively. Thus, its decent cash levels and solid credit profile indicate that it will likely be able to continue to meet debt obligations despite economic slowdowns.
Expanding Foothold in Private Equity Market
Goldman Sachs plans to ramp up its lending services to private equity and asset managers and 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.
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.
Capital Distribution
Goldman Sachs’ capital distribution activities have been impressive over the years. Following the clearance of the 2024 stress test, the company announced its plans to reduce repurchase activities in the upcoming quarters due to higher-than-expected Stress Capital Buffer (SCB) requirements. The company will dynamically deploy capital to support its client franchise while targeting a prudent buffer above the new requirement. This approach aims to balance the business’ needs with regulatory expectations and maintain financial stability.
In July 2024, the company’s board of directors approved a 9.1% increase in the common stock dividend to $3 per share starting from third-quarter 2024. Given its decent liquidity, such capital distribution activities seem sustainable. This is likely to stoke investors’ confidence in the stock.
Finance Stocks Worth a Look
Some other top-ranked finance stocks are NatWest Group plc (NWG - Free Report) and BNP Paribas SA (BNPQY - Free Report) , each sporting a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NatWest Group’s earnings estimates for 2024 have been revised 7.1% upward in the past 30 days. NWG’s shares have gained 49.6% in the past six months.
BNP Paribas’s 2024 earnings estimates have revised by 1% in the past 30 days. BNPQY’s shares have gained 8.2% in the past six months.