Back to top

Image: Bigstock

Goldman Displays Cost Control: Should You Hold the Stock?

Read MoreHide Full Article

Goldman Sachs (GS - Free Report) can be a solid bet now backed by its leading global position in completed mergers and acquisitions. The company’s strong client activity amid volatile markets is anticipated to yield positive results.

Organic growth, cost management and steady capital-deployment activities continue to drive Goldman’s growth. However, litigation issues remain concerns.

Expense management and business diversification have aided the company to gain 19.8% in the past three months compared with the industry’s growth of 20.2%.



Further, the company’s earnings estimates moved 2.6% and 0.4% upward, for the current and next year, respectively, over the past 30 days. As a result, the stock carries a Zacks Rank #3 (Hold).

For the past few years, Goldman has been benefiting from its prudent expense-reduction initiatives. Though expenses have been volatile, the figure declined significantly in 2016 but witnessed a three-year CAGR of 9% in 2019, due to higher compensation and litigation expenses. The uptrend continued in first-quarter 2020 as well. Nevertheless, the company completed an expense-reduction initiative and generated nearly $900 million of run-rate savings. The company is focused on improving efficiency, while maintaining a solid franchise and investing in new opportunities.

While overall revenues have been affected by unfavorable market conditions over the last few quarters, Goldman remains well positioned for growth, given its strong investment banking operations and solid client franchise. These, in turn, are likely to help the company leverage on the improving environment.

Furthermore, the key source of the company’s earnings stability is its business diversification. Within traditional banking, a diversified product portfolio has higher chances of sustaining growth than many other banks, which have exited some of these areas.

Driven by a solid capital position, Goldman has consistently enhanced shareholders’ value with steady capital-deployment activities. The company’s approved 2019 capital plan includes up to $7 billion in repurchases and $1.8 billion in total common stock dividends, beginning third-quarter 2019 through second-quarter 2020. Following the approval, the company increased its quarterly dividend to $1.25 in July 2019. Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” due to the coronavirus pandemic.

However, Goldman has high dependence on overseas revenues as reflected in the last few years. A number of risks stemming from the regulatory and political environment, foreign-exchange fluctuations and performance of regional economy might hurt its top line. Also, though the company resolved certain litigations related to the sale of risky mortgage-backed securities, many of the cases are yet to be resolved. All these are expected to lead to elevated expenses and litigation provisions in the near term.

Stocks to Consider

Tradeweb Markets Inc (TW - Free Report) has witnessed upward earnings estimate revisions for 2020 over the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has gained 39.8% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

GAIN Capital Holdings, Inc.’s current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have surged 45.3% over the past six months. At present, it holds a Zacks Rank of 2 (Buy).

Mackinac Financial Corporation has witnessed upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #2 Ranked stock has depreciated 29.9% over the past six months.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>


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 >>

Tradeweb Markets Inc. (TW) - free report >>

Published in