Goldman Sachs (
GS Quick Quote GS - Free Report) is a captain of high finance and the banking sector's knight in shining armor. The firm is known for its quick trading action and best-in-class deal-making investment bank. GS has soared over 50% to all-time highs since Biden was elected President on November 3rd, and I believe this stock has legs to continue running.
The economic downturn and proceeding recovery have been an unexpected tailwind for Goldman, driving the business to record profitability the past 2 quarters, with a robust double-digit topline expansion. Due to Goldman's trading and deal-making profit drivers, the bank didn't see the same margin-pinches from the ultra-low interest rates that commercial banks like JP Morgan (
JPM Quick Quote JPM - Free Report) and Bank of America ( BAC Quick Quote BAC - Free Report) did.
GS is expected to continue pushing growth and profitability as a slew of big deals and market action extends into 2021. Analysts have been increasingly optimistic about GS following its record earnings on Tuesday, pushing its EPS estimates on every time horizon and propelling the stock into a Zacks Rank #1 (Strong Buy).
The firm illustrated unbelievable results in the wake of economic uncertainty, taking advantage of new market opportunities. GS reported recorded breaking earnings of $12.08 per share, demonstrating 158% year-over-year growth, and blew Zacks Consensus estimates out of the water by over 72%. Its sales were quite strong as well, showing $11.74 billion, up 18% from the same quarter last year, beating estimates by 22%.
Equity trading and its deal-making investment banking (IB) segment were the two largest growth drivers for this best-in-class investment bank. Goldman's investment banking sector was up 24% in 2020 compared to 2019, and this segment looks like it's just heating up with Q4 IB earnings up 33% from Q3 and 27% year-over-year. Its equities-underwriting portion of IB was booming in 2020 as a record number of businesses hit the public exchanges.
454 companies IPO'ed in 2020, raising over $167 billion, far surpassing the previous record made in 1999 amid the dot-com mania. Goldman was an enormous beneficiary of this push to the public markets. The firm drove over $3.4 billion last year from equity underwriting alone, up 130% from 2019. It looks like this subsegment is only beginning to simmer, with this past quarter generating $1.12 billion, up 195% year-over-year and 30% quarter-over-quarter.
GS's global markets division was its biggest topline driver as the business strategically navigated the choppy market waters and drove this segment's revenue up 43% to a record $21.16 billion, 47% of its total topline in 2020. Equities sales & trading at Goldman appear to be still riding a tailwind as the stock market surges to seemingly no end. This group is up 16% quarter-over-quarter.
What's Next For GS?
David Solomon is proving himself at the helm of this remarkable firm. Since Solomon was named CEO and Chairman of Goldman Sachs on October 1st, 2018, GS shares are up over 28%. This may not sound like a lot, but GS has navigated the 2018 year-end sell-off and the most significant economic contraction in over a decade. GS is sizably outperforming its cohorts JPM and BAC, who have only returned 18% and 8%, respectively. Below is a 1-year price chart of GS (blue) compared to JPM (red) and BAC (green).
Investors & traders pulled profits from all the major banks following earnings over the past week. GS was no expectation as its share price dipped from an all-time high of $309.41 down to the $290 we are trading at today. This has created a tremendous buying opportunity, with 9 out 13 analysts calling GS a strong buy today. The most optimistic price targets are north of $400 a share, representing a 69% upside.
I remain a GS buyer despite the run it has already had. This company is adaptable and resourceful, and no matter what the economy throws at it, GS comes out on top.
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