Back to top

Image: Bigstock

Bull of the Day: Goldman Sachs (GS)

Read MoreHide Full Article

Bank stocks have been big gainers since Trump’s electoral victory on hopes of higher interest rates and lighter regulations under the new administration. Last Friday, bank stocks surged after President Trump ordered a review of Dodd Frank regulations.

Goldman Sachs (GS - Free Report) is seen as a big winner from the roll back of these regulations and in general a lighter regulatory environment promised by Trump. These Dodd Frank rules and other regulations imposed in the aftermath of the financial crisis no doubt improved the health of the banking system but their costs were too high.

About the Company

Founded in 1869, Goldman Sachs Group, is a leading global investment banking, securities and investment management firm. The company is headquartered in New York, with offices in all major financial centers around the world.

Excellent Results

They reported last month, beating the Zacks Consensus Estimates on the top the bottom lines. Results were boosted by a surge in trading volumes and cost cutting.

Adjusted earnings of $5.08 per share were significantly ahead of the Zacks Consensus Estimate of $4.76 and revenues of $8.2 billion also beat the expectation of $7.4 billion.

“After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved,” said the CEO.

Rising Estimates

After better than expected results, analysts have raised estimates for the company. Zacks Consensus Estimates for the current and the next year have surged to $19.60 per share and $22.32 per share from $18.74 and $21.02 respectively, before the results.

If you look at the Price, Consensus and EPS Surprise chart, they have missed only once in the last five years.

Returning Capital to Shareholders

During 2016, the bank repurchased $6.1 worth of stock and paid out approximately $1.1 billion of dividends. Per WSJ, six biggest US banks, including Goldman, could return more than $100 billion in capital to shareholders in the form of dividends and share buybacks over time if some of the regulations are rolled back.

The Bottom Line

In general, US banks have come a long way since the financial crisis, their balance sheets are much stronger and they have improved their risk management systems. They are very well capitalized and meet Basel III standards. In fact, many hold capital in excess of regulatory requirements.

Goldman shares have touched their record highs, not seen since the financial crisis. But you look at the valuation, they don’t look too expensive, trading at a forward P/E multiple of 12.3.

Zacks' best stocks under $10

As a Zacks Rank #1 Strong Buy, today's Bull of the Day has a short-term 1 to 3-month profit zone. But the Zacks Rank system also leads to longer-term investments. Starting today, you can look inside our lowest-priced stocks with 2X and 3X profit potential plus other private portfolios. Simply click here >>

Disclosure: I hold shares of Goldman Sachs in my personal trading portfolio.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The Goldman Sachs Group, Inc. (GS) - free report >>