On Monday, Evercore ISI sustained its positive stance on Goldman Sachs shares, reiterating an Outperform rating and a price target of $435.00. The firm recognized Goldman Sachs' robust performance, highlighting a series of positive factors contributing to the bank's successful quarter.
The increased activity in investment banking added approximately 26 cents to the earnings per share (EPS), while higher trading contributed roughly $1. Additionally, a lower provision boosted EPS by around 80 cents, and the company managed to keep expenses in check, which only rose by 3% despite significant revenue growth.
Goldman Sachs reported a 16% year-over-year increase in revenue, outpacing the modest 3% rise in expenses. This was led by a notable 32% surge in investment banking revenue and a 10% increase in both Fixed Income, Currencies, and Commodities (FICC) & Equities. Asset & Wealth Management also saw an 18% rise, with $24 billion in net flows, evidencing real operating leverage with a 7% decrease in expenses. Although the return on equity (ROE) was higher, reaching approximately 10%, there is still room for improvement.
At the firm level, Goldman Sachs achieved a return on equity (ROE) of 14.8% and a return on tangible common equity (ROTCE) of 15.9%. These figures are within the company's target range. Evercore ISI notes the importance of convincing investors of the semi-sustainability of the revenue and the dynamic of expenses, especially with non-compensation expenses significantly reduced. The report also acknowledges the ongoing progress in key company initiatives, such as increasing financing revenue and management fees, as well as the gradual reduction of on-balance-sheet principal investments.
Despite the strong quarter, there were a few areas of concern noted. These included a loss of approximately $100 million in platform solutions, a lower investment banking backlog, mostly in advisory, and the need for further reduction of the Held-For-Investment (HPI) book, which shrank by $1.6 billion. Moreover, the sustainability of reduced expenses like depreciation & amortization, which was down by 35%, occupancy costs reduced by 7%, and market development expenses decreased by 11%, remains to be seen.
In conclusion, Evercore ISI views the quarter's results as strong and anticipates a positive rebound in Goldman Sachs' stock, following a period of softness over the past two weeks.
InvestingPro Insights
Goldman Sachs has demonstrated a robust financial performance, and key metrics from InvestingPro further bolster the positive outlook from Evercore ISI. With a market capitalization of $133.55 billion and a forward-looking P/E ratio of 14.67, Goldman Sachs shows value relative to its earnings. The company's revenue has seen a growth of 1.29% over the last twelve months as of Q4 2023, with a significant quarterly increase of 11.64% in Q4 2023, underscoring the bank's strong revenue-generating capabilities.
InvestingPro Tips highlight that Goldman Sachs has not only been profitable over the last twelve months but also has maintained dividend payments for 26 consecutive years, raising its dividend for 12 consecutive years. This demonstrates a commitment to returning value to shareholders, a factor that might be particularly attractive to income-focused investors. Moreover, the company's liquid assets exceed its short-term obligations, indicating a solid liquidity position.
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