Goldman Sachs stock is a buy, even after a disappointing quarter

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The lobby of Goldman Sachs headquarters in Lower Manhattan. Goldman had a strong 2021, although trading slowed in the fourth quarter.

Victor J. Blue/Bloomberg

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Goldman Sachs Group just had a record year when he earned $21 billion– more than double that of the 2019 pre-pandemic.

Investors are not in a festive mood. Goldman shares (ticker: GS) fell 10% last week, leaving them 19% below their November peak, after fourth-quarter earnings of $10.81 per share fell short of expectations for the first time in seven quarters.

The sale offers an opportunity to invest in Wall Street’s most prestigious investment bank and trading house at an attractive price. Goldman was a Barrons top stock pick for 2021, when it returned 47.6%, and it looks set for another strong year.

The stock, at a recent $345, trades at less than nine times forecast 2022 earnings of around $40 per share and just 1.2 times its 2021 year-end book value of $284 per share. . This is a strong discount to rivals


Morgan Stanley
(MS) and


JPMorgan Chase
(JPM), which is reporting about 13 times projected 2022 earnings and nearly twice book value, despite similar fourth-quarter returns on equity.

Like those Wall Street giants, Goldman has reaped rich profits trading bonds, currencies, commodities and stocks. Yet Goldman is more reliant on this trade and investment banking than its peers. This can make its profits more volatile and harder to predict.

Company / Symbol Recent Price Market value (bil) Change over 52 weeks RPA 2021 2022E EPS 2022E P/E Price / Book ratio Dividend yield
Goldman Sachs Group / GS $348.10 $121.6 19.8% $59.45 $40.31 8.6 1.2 2.3%
Bank of America / BAC 45.75 369.6 41.5 3.44 3.21 14.3 1.5 1.8
Citigroup/C 64.46 127.9 1.9 7.67 8.17 8.4 0.7 3.2
JPMorgan Chase / JPM 147.66 436.4 8.6 15.36 11:40 a.m. 13.0 1.7 2.7
Morgan Stanley/MS 99.83 176.9 33.4 8.01 7.67 13.0 1.8 2.8
Wells Fargo/WFC 55.00 213.7 69.4 4.95 3.87 14.2 1.3 1.5

E=estimate

Sources: Bloomberg; business reports

Even with a return to more normal, albeit less lucrative, markets, “Goldman’s earnings should be significantly higher than where the company entered the pandemic,” says JMP Securities analyst Devin Ryan. It has an outperform rating and a price target of $460 on the stock.

Ryan says the company is getting virtually no credit for some of its new businesses, including digital consumer banking franchise Marcus, which has more than $100 billion in deposits, 10 million customers and 1.5 billion dollars in revenue in 2021. Goldman does not disclose earnings for its consumer bank. But public digital banks are trading for a revenue multiple, which means the Goldman platform could be worth $10 billion or more.

The firm also has a rapidly growing business managing alternative assets, including private equity, for its clients. Its asset management business, with $2.5 trillion under supervision across various platforms, could be worth $30 billion or more, or a quarter of the company’s market value.

These companies contribute greatly to Goldman’s goal of diversifying its revenue base.

Investors still have problems. Despite growing consumer activity, Goldman is not playing on rising interest rates, as is the case with other banks.

Another problem is that Goldman’s expenses are up sharply, especially compensation, which rose 33% last year to $17.7 billion. Investors fear that the company will have to pay to attract and retain talent.

Goldman downplays concerns.

“Our pay-for-performance philosophy means that compensation is variable in both directions,” said Denis Coleman, Goldman’s chief financial officer. Barrons. “If this year is different from 2021, we can withdraw it.”

Goldman’s book value could top $310 per share by the end of 2022, meaning the stock is trading at 1.1 times forward book value. This suggests few downsides. The book value has only about 5% intangible assets. And the company takes an old-fashioned view that steadily increasing book value is an important corporate goal.

Given its valuable small-cap businesses, such as investment banking and asset management, Goldman is likely worth much more than its book value. Earnings of $40 per share in 2022 would be very respectable — nearly double 2019 levels — and translate into a strong return on equity of around 14%. Goldman earned a record $59.45 per share in 2021.

Its shares are now yielding 2.3% after the company increased its dividend by 60% in 2021. Another dividend increase is a good bet in 2022.

Goldman is due to update investors in February on its strategic initiatives rolling out in early 2020. So far, it has achieved its three main goals of expanding and strengthening existing franchises, diversifying its business mix and increase in poor yields. Investors will be eager to see if Goldman raises its return on equity target, now a floor of 13%.

Goldman’s Coleman says, “We have a top five asset manager at Goldman Sachs. We have a consumer digital bank with differentiated products in growth mode within Goldman Sachs. We have a leading investment bank within Goldman Sachs and a leading sales and trading business.

The sum of those parts is likely worth much more than Goldman’s current market value of $120 billion. His candor continues to grow.

Write to Andrew Bary at [email protected]

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