The Goldman Sachs Group, Inc. (GS Quick QuoteGS - Free Report) is well poised for growth as it is focusing on its core businesses. The company’s steady capital distributions and solid balance sheet position augur well. However, elevated costs are major headwinds.

Goldman is refocusing its business on its core strengths of investment banking (IB) and trading, while reducing its consumer banking footprint. In fourth-quarter 2023, it sold its Personal Financial Management unit to Creative Planning. Further, during the quarter, it sold the majority of GreenSky’s loan portfolio and also entered into an agreement with a consortium led by Sixth Street Partners to divest GreenSky. The deal is expected to close in the first quarter of 2024.

GS aims to cease unsecured loan offerings to consumers through Marcus. In 2023, it sold entire of Marcus’ loan portfolio. Apart from these divestitures, the company is offloading its credit card program with General Motors.

Focus on core businesses is a strategic fit, given Goldman’s top position in worldwide announced and completed mergers and acquisitions (M&As), equity and equity-related offerings, and common stock offerings. It witnessed strong improvement in its M&A backlog in fourth-quarter 2023 and expects various initial public offerings in 2024.

We believe robust client engagement, backed by digital disruption and transformation trends, signs of growing M&A and underwriting pipelines, and the company’s decent IB backlog are expected to support IB revenues in the upcoming period. We expect IB fees to rise 8.8% and 3.4% in 2024 and 2025, respectively.

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.

GS maintains a solid balance sheet position. It exited fourth-quarter 2023 with cash and cash equivalents of $242 billion and total unsecured debt (comprising long and short-term borrowings) of $318 billion. Out of this, only $76 billion were near-term borrowings. The company's solid liquidity profile aids sustainable capital distributions.

However, Goldman might see limited market-making opportunities in the Global Banking and Markets division. The segment’s revenues witnessed a decline in 2022 and 2023 due to an increasingly challenging market-making backdrop. Future performance of this volatility-driven division depends on market developments and client volumes, which remain uncertain. We forecast segmental revenues to decline 3.4% in 2024.

GS’s bottom-line growth has been affected in the past few years by its escalating cost base. Moreover, 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. Our model estimates total non-interest expenses to witness a compound annual growth rate of 3.4% over the next three years ending 2026.

Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 17.5% compared with the industry's growth of 17.1%.

Image Source: Zacks Investment Research

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are Blue Owl Capital Corporation (OBDC Quick QuoteOBDC - Free Report) and Raymond James Financial Inc. (RJF Quick QuoteRJF - Free Report) .

Blue Owl Capital carries a Zacks Rank #2 (Buy) at present. Estimates for its 2023 earnings have remained unchanged over the past 60 days. In the past six months, OBDC’s shares have rallied 6.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Raymond James current-year earnings has been revised 1.7% upward over the past 30 days. Its shares have gained 7.2% in the past six months. Currently, RJF carries a Zacks Rank #2.