We’re raising our price target on Goldman Sachs after strong, noisy Q4
Goldman Sachs reported mixed fourth-quarter results on Thursday, but there was plenty for investors to like, and shares rose more than 4%. Revenue in the third quarter ended Dec. 31 fell 3% year over year to $13.45 billion, missing the consensus estimate of $13.79 billion, compiled by data provider LSEG. Earnings per share (EPS) increased 17.2% year over year to $14.01, well ahead of the $11.68 estimate, according to LSEG. GS 1Y mountain Goldman Sachs 1-year return Bottom line It wasn’t the cleanest quarter, with Goldman reporting its first revenue miss since April 2023. It was also a noisy report, given that the bank divested its Apple credit card business during the reported quarter, resulting in a significant revenue hit to its platform solutions unit, which was more than offset by the release of reserves tied to provisions for credit losses. Using these previously set-aside funds for loan defaults — assuming fewer loans are expected to default — boosts earnings. The bank’s other two segments, global banking and markets, and asset and wealth management, generated better-than-expected revenue. Overall return on tangible common equity came in well above expectations, up 160 basis points year over year. Net interest income was also strong, and the firm’s Common Equity Tier 1 (CET1) ratio is well above the required minimum, indicating ample capacity to invest in growth and return cash to shareholders. The CET1 ratio measures a bank’s financial strength, calculated by dividing its highest-quality capital (common stock, retained earnings) by its total risk-weighted assets (RWAs). The higher the ratio, the greater stability. The required minimum for banks varies based on scale and importance to the financial system, but for Goldman the minumum ratio is 10.9%. We see the move away from the Apple credit card as an opportunity to focus on Goldman’s core businesses. On the call, CEO David Solomon said he expects the company’s investment banking activity to accelerate, driven by several catalysts, including “tremendous public and private capital fueling growth in AI, as well as a strong pickup in sponsor activity.” Why we own it Goldman Sachs is our bet on a rebound in dealmaking as the regulatory environment improves under President Donald Trump. Investment banking is a significant part of Goldman Sachs. Initiation date: Dec. 19, 2024 Most recent buy: March 19, 2025 Competitors: Morgan Stanley , JPMorgan , Bank of America , and Citigroup Solomon added that the firm’s investment banking backlog stands at its highest level in four years, which should help the rest of Goldman’s businesses. “M & A transactions often kick off a flywheel of activity across our entire franchise,” Solomon explained. “Whether it’s acquisition, financing, hedging activity, secondary market making, or investing opportunities for AUM clients. It is unquestionable that there is a significant multiplier effect. And as the number one advisor for over two decades, we are uniquely positioned to capture the significant forward opportunity.” The team also updated its medium-term targets for the asset and wealth management business. The team is now targeting a pre-tax margin of roughly 30% for the business, up from the previous mid-20% target. On the returns front, management upped its target to high-teens percentage growth from mid-teens. To help achieve this, the firm is now targeting 5% long term, fee-based net inflows annually across the platform. Given the positive momentum and plans to accelerate growth across all of its businesses, we are increasing our price target to $1,050 from $925 and maintaining our 2 rating, as the stock rallied roughly 20% since late November coming into the print. Commentary Goldman’s global banking and markets division reported revenue growth of 22.4% in the fourth quarter to $10.41 billion, well ahead of expectations. Revenue from investment banking, the largest segment, increased 25% year over year. Driving growth was a 41% increase in advisory revenues, an 18% increase in debt underwriting revenue, and a 4% increase in equity underwriting revenue. Fixed income, currency, and commodities revenue came in at $3.11 billion, 12% above last year’s level, and above the $2.94 billion expected. The strong result reflects 15% growth in intermediation revenue and 7% growth in financing. Equities revenue increased 25% year over year, “due to significantly higher net revenues in equities financing.” Fourth-quarter revenue in the asset and wealth management division pulled back 1% from a year ago, though it was up 7% sequentially and still managed to outpace expectations. Compared with the year-ago period, the segment benefited from a 10% increase in management and other fees, driven by a 5% increase in average assets under supervision, a 5% increase in private banking and lending, and a 4% increase in incentive fees. However, those gains were more than offset by a 36% decline in investment revenue, which management noted on the release “primarily reflected net losses from investments in public equities compared with net gains in the prior year period and significantly lower net gains from investments in private equities.” Platform solutions revenue was down materially; however, this is not surprising, given that we already knew Goldman Sachs had sold its Apple credit card business to JPMorgan. As a result, the segment took a $2.26 billion revenue hit. At the firmwide level, this revenue decline was more than offset by the $2.48 billion reserve reduction in provision for credit losses. Regarding shareholder returns, management announced a 50-cent-per-share increase to its quarterly common dividend, and the firm has $32 billion remaining under its current share repurchase authorization. (Jim Cramer’s Charitable Trust is long GS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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