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Focus on IB, Expansion Efforts Aid Goldman (GS) Amid Cost Woes
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The Goldman Sachs Group, Inc. (GS - Free Report) is well-poised for growth on the back of its business expansion efforts. It also focuses on investment banking (IB) and trading income, which help leads to top-line growth. The company’s steady capital distribution activities and solid balance sheet position augur well.
However, elevated expenses, volatile client-activity levels and the overdependence on overseas revenues may hinder its performance in the near term.
Goldman is refocusing its business on its core strengths of IB and trading, while reducing its consumer banking footprint. In regard to this, in October 2023, the company entered into an agreement with a consortium led by investment firm Sixth Street Partners to divest its consumer lending platform, GreenSky, and associated loans.
In August 2023, GS entered an agreement to divest its Personal Financial Management unit to the leading registered investment advisor, Creative Planning. Also, Goldman aims to cease unsecured loan offerings to consumers through Marcus. In the first half of 2023, the firm sold substantially all of Marcus’s loan portfolio instalments.
Focus on business expansion activities is a strategic fit, given Goldman’s solid position in worldwide announced and completed M&As. Its robust client engagement, backed by digital disruption and transformation trends, and the company’s decent IB backlog are expected to support IB revenues in the upcoming period. While we expect IB fees to decline in 2023, the metric is projected to increase 8.5% in 2024 and 6.3% in 2025.
The company is making efforts to diversify its business mix toward more recurring revenues and durable earnings. These are underlined by the buyout of NN Investment and robo-advisor NextCapital. These moves are aimed at bolstering international presence, as well as wealth and asset management capabilities. These and other past acquisitions continue to help diversify the fee-revenue base and offer top-line stability.
Additionally, Goldman maintains a solid balance sheet position. It exited third-quarter 2023 with cash and cash equivalents of $240 billion, and total unsecured debt (comprising long- and short-term borrowings) of $294 billion. Out of this, only $70 billion were near-term borrowings.
Thus, the company's decent capital level and a solid credit profile indicate that it will likely be able to continue to meet debt obligations even during economic slowdowns.
Further, Goldman’s meaningful capital distribution efforts through regular dividend payments and share repurchases are likely to continue enhancing shareholders’ wealth.
Analysts seem bullish regarding GS’s earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised marginally upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of GS have gained 3.9% against the industry's fall of 2.2%.
Image Source: Zacks Investment Research
However, expenses saw a four-year compound annual growth rate (CAGR) of 7.4% in 2022, with the uptrend continuing in the first nine months of 2023. Investments in technology, market development expenses for business expansion and a rise in transaction-based expenses during periods of higher client activity will keep the expense base elevated in the upcoming period. We project operating expenses to witness a CAGR of 6.7% over the next three years ending 2025.
Amid increasing volatility due to an evolving macroeconomic backdrop, geopolitical concerns and inflation, Goldman might see limited market-making opportunities in the Global Banking and Markets division. The segment’s revenues witnessed a decline in the first nine months of 2023 due to an increasingly challenging market-making backdrop. We anticipate the segment’s revenues to decline 6.3% year over year in 2023.
Goldman is a geographically diversified company with a presence in almost all of the world's major markets. The company is highly dependent on overseas revenues. A number of risks arising from the regulatory and political environment, foreign exchange fluctuations, and the performance of regional economies are likely to affect its top line.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Blue Owl Capital Corporation (OBDC - Free Report) and Interactive Brokers (IBKR - Free Report) .
Blue Owl Capital sports a Zacks Rank #1 (Strong Buy) at present. Its earnings estimates for 2023 have been revised 2.7% upward over the past 30 days. In the past six months, OBDC’s shares have rallied 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Interactive Brokers current-year earnings has been revised marginally upward over the past 30 days. Its shares have gained 7.1% in the past six months. Currently, IBKR carries a Zacks Rank #2 (Buy).
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Focus on IB, Expansion Efforts Aid Goldman (GS) Amid Cost Woes
The Goldman Sachs Group, Inc. (GS - Free Report) is well-poised for growth on the back of its business expansion efforts. It also focuses on investment banking (IB) and trading income, which help leads to top-line growth. The company’s steady capital distribution activities and solid balance sheet position augur well.
However, elevated expenses, volatile client-activity levels and the overdependence on overseas revenues may hinder its performance in the near term.
Goldman is refocusing its business on its core strengths of IB and trading, while reducing its consumer banking footprint. In regard to this, in October 2023, the company entered into an agreement with a consortium led by investment firm Sixth Street Partners to divest its consumer lending platform, GreenSky, and associated loans.
In August 2023, GS entered an agreement to divest its Personal Financial Management unit to the leading registered investment advisor, Creative Planning. Also, Goldman aims to cease unsecured loan offerings to consumers through Marcus. In the first half of 2023, the firm sold substantially all of Marcus’s loan portfolio instalments.
Focus on business expansion activities is a strategic fit, given Goldman’s solid position in worldwide announced and completed M&As. Its robust client engagement, backed by digital disruption and transformation trends, and the company’s decent IB backlog are expected to support IB revenues in the upcoming period. While we expect IB fees to decline in 2023, the metric is projected to increase 8.5% in 2024 and 6.3% in 2025.
The company is making efforts to diversify its business mix toward more recurring revenues and durable earnings. These are underlined by the buyout of NN Investment and robo-advisor NextCapital. These moves are aimed at bolstering international presence, as well as wealth and asset management capabilities. These and other past acquisitions continue to help diversify the fee-revenue base and offer top-line stability.
Additionally, Goldman maintains a solid balance sheet position. It exited third-quarter 2023 with cash and cash equivalents of $240 billion, and total unsecured debt (comprising long- and short-term borrowings) of $294 billion. Out of this, only $70 billion were near-term borrowings.
Thus, the company's decent capital level and a solid credit profile indicate that it will likely be able to continue to meet debt obligations even during economic slowdowns.
Further, Goldman’s meaningful capital distribution efforts through regular dividend payments and share repurchases are likely to continue enhancing shareholders’ wealth.
Analysts seem bullish regarding GS’s earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised marginally upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
Over the past three months, shares of GS have gained 3.9% against the industry's fall of 2.2%.
Image Source: Zacks Investment Research
However, expenses saw a four-year compound annual growth rate (CAGR) of 7.4% in 2022, with the uptrend continuing in the first nine months of 2023. Investments in technology, market development expenses for business expansion and a rise in transaction-based expenses during periods of higher client activity will keep the expense base elevated in the upcoming period. We project operating expenses to witness a CAGR of 6.7% over the next three years ending 2025.
Amid increasing volatility due to an evolving macroeconomic backdrop, geopolitical concerns and inflation, Goldman might see limited market-making opportunities in the Global Banking and Markets division. The segment’s revenues witnessed a decline in the first nine months of 2023 due to an increasingly challenging market-making backdrop. We anticipate the segment’s revenues to decline 6.3% year over year in 2023.
Goldman is a geographically diversified company with a presence in almost all of the world's major markets. The company is highly dependent on overseas revenues. A number of risks arising from the regulatory and political environment, foreign exchange fluctuations, and the performance of regional economies are likely to affect its top line.
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are Blue Owl Capital Corporation (OBDC - Free Report) and Interactive Brokers (IBKR - Free Report) .
Blue Owl Capital sports a Zacks Rank #1 (Strong Buy) at present. Its earnings estimates for 2023 have been revised 2.7% upward over the past 30 days. In the past six months, OBDC’s shares have rallied 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Interactive Brokers current-year earnings has been revised marginally upward over the past 30 days. Its shares have gained 7.1% in the past six months. Currently, IBKR carries a Zacks Rank #2 (Buy).