Goldman Sachs Stock Is Trading Below Its Intrinsic Value

Goldman Sachs’ stock (NYSE: GS) has lost approximately 6% YTD as compared to the 2% rise in the S&P500 index over the same period. Further, at its current price of $322 per share, it is trading 19% below its fair value of $396 – Trefis’ estimate for Goldman Sachs’ valuation. The investment bank posted lower-than-expected results in the fourth quarter of 2022, missing both revenues and earnings consensus estimates. The total revenues decreased 16% y-o-y to $10.59 billion, mainly driven by a 48% drop in investment banking and a 27% decline in asset & wealth management businesses. The investment banking was primarily down due to lower underwriting revenues – equity underwriting (-82%) and debt underwriting (-70%), driven by lower deal volumes. Similarly, asset & wealth management suffered due to a sharp decline in net income from equity investments and debt investments. That said, the platform solutions and FICC (fixed income, currency & commodity) trading revenues witnessed positive growth in the quarter. Overall, the adjusted net income was reduced by 69% y-o-y to $1.18 billion. This was partly because of negative growth in the top-line and partly due to higher expenses as a % of revenues.

The bank’s top line fell by 20% y-o-y to $47.37 billion in FY 2022. It was because of a 48% drop in investment banking and a 39% decline in the asset & wealth management segments. However, the impact was somewhat offset by a 38% rise in the FICC trading and a 135% jump in the platform solutions divisions. On the cost front, the provisions for credit losses increased from $357 million to $2.7 billion in the year. Further, the operating expenses as a % of revenues witnessed an unfavorable increase from 54% to 66%. Altogether, the adjusted net income decreased 49% y-o-y to $10.76 billion.

Moving forward, we expect the same trend to continue in Q1. All in all, Goldman Sachs revenues are forecast to touch $50.22 billion in FY2023. Additionally, GS’ adjusted net income margin is likely to see a slight improvement in the year, leading to an adjusted net income of $11.66 billion. This coupled with an annual EPS of $34.22 and a P/E multiple of just below 12x will lead to a valuation of $396.

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[1] Month-to-date and year-to-date as of 3/15/2023
[2] Cumulative total returns since the end of 2016

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