Goldman Sachs stock downgraded by HSBC as analyst sees limited upside

Investing.com - Goldman Sachs (NYSE:GS) stock was downgraded by HSBC from Hold to Reduce, despite the price target being raised to $627.00 from $558.00. The stock is currently trading near its 52-week high of $726, having delivered an impressive 56% return over the past year. According to InvestingPro data, 4 analysts have recently revised their earnings expectations downward for the upcoming period.

HSBC believes the good news is already priced into Goldman Sachs’ stock, suggesting that without a significant increase in investment banking activity or continued strong market performance, investors could face disappointment and a sharp correction. InvestingPro’s Fair Value analysis suggests the stock is currently fairly valued, while the company maintains a P/E ratio of 16.24 and has been actively buying back shares.

The downgrade comes as HSBC conducted upside and downside scenario analyses that support their cautious view on Goldman’s stock. In their upside case, HSBC assumes investment banking fees would return to 2021’s extraordinary levels by 2026 and remain at 90% of those levels in 2027.

This optimistic scenario also forecasts double-digit growth in management fees and private banking revenue, with pre-tax margins exceeding 30% by 2027. Under these conditions, HSBC projects Goldman’s return on equity (ROE) could reach 18.0% in 2027, with return on tangible common equity (ROTCE) at 19.2%.

These projected returns would exceed Goldman Sachs’ own through-the-cycle targets of 14-16% for ROE and 15-17% for ROTCE, suggesting HSBC believes even the company’s best-case scenario is largely reflected in the current stock price.

In other recent news, Goldman Sachs Group Inc. has made several noteworthy announcements. The company has decided to re-enter the special-purpose acquisition company (SPAC) market, ending a three-year hiatus due to increased regulatory scrutiny. This move marks a shift from its previous stance, as Goldman Sachs plans to evaluate each potential SPAC transaction individually. Additionally, Keefe, Bruyette & Woods has maintained its Market Perform rating on Goldman Sachs shares, with a consistent price target of $585.00, reflecting a cautious but steady outlook on the bank’s stock.

In related developments, Goldman Sachs President John Waldron discussed the prospects of banking consolidation in Europe, suggesting a focus on national rather than cross-border mergers. Waldron highlighted the importance of scale in the banking industry and noted that private credit will continue to play a significant role in financing. Meanwhile, Goldman Sachs and JPMorgan are acting as lead underwriters for the potential IPO of Jennifer Garner’s organic baby food company, Once Upon a Farm, which could be valued at approximately $1 billion. Lastly, Goldman Sachs led gains among bank stocks following the Federal Reserve’s stress test, which showed that major financial institutions, including Goldman Sachs, are well-capitalized and resilient to severe economic downturns.

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