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Stock Analysis & Ideas

Goldman Sachs: Undervalued, Above-Average Dividend Yield

Goldman Sachs (GS) is an American financial service provider and investment bank headquartered in New York City. GS offers investment banking, asset management, securities, prime brokerage, investment management, and Underwriting. GS also brokers credit offerings like insurance-linked securities, mortgage-backed securities, equities, commodities, and currencies.

In terms of revenue, the company ranks second among all investment banks globally. As for the Fortune 500 list, it ranked 59th in 2021. The company was founded in 1869. The company has also been criticized for its ethical policies in recent years. The reason for the backlash is because there have been instances in which the bank has worked with dictatorial regimes.

Regardless, I am bullish on Goldman Sachs as Wall Street analysts are generally bullish on it, the average price target indicates strong upside potential over the next year, and the valuation multiples look cheap relative to historical averages.

Strengths

Throughout its existence, Goldman Sachs has been lauded for its high level of customer satisfaction, due to which they’ve also been able to build strong brand equity within the industry. This is possible because of its highly skilled workforce. GS regularly trains its employees through rigorous training programs. The company also has the knack of building new products and then making them succeed, which is primarily evident through its Consumer and Wealth Management product, which recently amassed revenue of $2 billion for the first time.

Recent Results

The company continued its strong growth in the third quarter, with net revenue of $13.61 billion, a 26% year-on-year increase. In the first nine months of 2021, the company has managed to generate revenue of $46.70 billion and accumulate earnings of $17.70 billion.

Its diluted EPS for the year stands at $48.59, which also means that it has surpassed every year-on-year metric. Its Investment Banking sector generated its second-highest quarterly profit ever ($3.7 billion), which also shows its continued strength in Underwriting.

Valuation Metrics

TMUS stock looks attractively priced here as it trades below its historical averages on a dividend yield and forward price/normalized earnings basis. Its dividend yield is 2.33% compared to its historical average of 1.84%, and its forward price/normalized earnings ratio is 8.6 times compared to its historical average of 10.21 times.

Meanwhile, analysts expect revenue to decline by 17.4% in 2022 and normalized earnings per share to decline by 33.7% in 2022.

Wall Street’s Take

According to Wall Street analysts, GS earns a Moderate Buy consensus rating based on nine Buys and five Holds assigned in the past three months. Additionally, the average Goldman Sachs price target of $464.08 puts the upside potential at 35.9%.

Summary and Conclusions

Goldman Sachs is a leading investment bank and financial services institution with a strong name brand and global presence.

Furthermore, analysts are generally bullish on the stock, and the average price target implies strong upside potential over the next year. Last but not least, the stock price looks undervalued based on its current valuation multiple and dividend yield relative to its historical levels.

As a result, investors might want to consider adding shares at the current price.

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Read full Disclaimer & Disclosure

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