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Is it Advisable to Add Goldman (GS) to Your Basket Now?

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With strong fundamentals and organic growth prospects, Goldman Sachs (GS - Free Report) appears to be an attractive pick now. In addition, interest rate hikes and improving economy are anticipated to further improve profitability.

Analysts seem to be optimistic about the company’s prospects as the stock has been witnessing upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for the current year has risen nearly 7.5% to $23.27. Backed by these upward estimate revisions, the company sports a Zacks Rank #1 (Strong Buy).

Additionally, Goldman’s shares have rallied 12% over the past year compared with 35.7% growth recorded by the industry.

With $974 billion in assets as of Mar 31, 2018, Goldman’s strengths include effective cost management, business diversification and steady capital-deployment activities.

6 Reasons Why Goldman is a Golden Egg  

Revenue Growth: Goldman continues to make steady progress toward improving its top line. The company’s projected sales growth (F1/F0) of 9.18% (as against 5.35% industry average) indicates constant upward momentum in revenues.

Earnings Per Share Strength: Earnings are anticipated to display an upswing in the near term, as the company’s projected EPS growth (F1/F0) is 17.77%. In addition to this, Goldman recorded an average positive earnings surprise of 18.13%, over the trailing four quarters.

Prudent Expense Management: Goldman has been benefiting from its successful expense-reduction initiatives for the past several years. Though expenses have witnessed a volatile trend in the last few years, the figure declined significantly in 2016, but increased 3% in 2017 and 21% in first-quarter 2018. Notably, the company carried out an expense initiative during the first half of 2016, which translated into run-rate expense savings of around $700 million. It continued this initiative in the second half of 2016 as well, and generated nearly $900 million of run-rate savings. Notably, Goldman’s $5 billion of growth initiatives is expected to drive an incremental $2.5 billion in annual pre-tax earnings, at a 30% marginal ROE.

Diversification: While overall revenues have been affected by unfavorable market conditions in the last few quarters, Goldman remains well positioned for growth, backed by its sound investment banking operations and solid client franchise. In traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks.

Notably, Goldman has been undertaking initiatives to fortify the GS Bank’s business by acquiring the online deposit platform of GE Capital Bank in April 2016. It also launched a digital consumer lending platform — Marcus by Goldman Sachs. Additionally, the company is likely to benefit from its exposure to the fast growing exchange-traded funds (ETF) market.

Steady Capital Deployment: Goldman remains focused on managing its capital levels efficiently and has consistently enhanced shareholders’ value with steady capital-deployment activities. The company’s 2017 capital plan won regulatory approval that includes share buybacks and an increase in its quarterly common stock dividend, along with the issuance and redemption of other capital securities. In April 2018, the company increased its common stock dividend by 6.7%.

Stock is Undervalued: Goldman has a P/E ratio of 10.38 compared to the industry average of 15.66. Further, the company has a P/B ratio of 1.26 compared to the industry average of 1.87. Based on these ratios, the stock seems undervalued.

Bottom Line

Organic growth, expense management, robust capital position and steady capital-deployment activities continue to support Goldman’s growth opportunities. Furthermore, business diversification remains a key strength for earnings stability.

Other Stocks to Consider

Northern Trust Corporation (NTRS - Free Report) has been witnessing upward estimate revisions for the last 60 days. For the past six months, the company’s share price has been up more than 14%. It currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions, for the last 60 days. Additionally, the stock climbed nearly 24.1%, over the past six months. It currently flaunts a Zacks Rank #1.

State Street Corporation (STT - Free Report) has been witnessing upward estimate revisions, for the last 30 days. Also, the company’s shares have risen nearly 8.6%, in six months’ time. It also holds a Zacks Rank of 2, at present.

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