On Wednesday, Jefferies analyst Daniel Fannon upheld a Buy rating for Goldman Sachs stock with a steadfast price target of $667.00. The endorsement follows Goldman Sachs' fourth-quarter earnings, which surpassed consensus estimates, primarily due to robust trading performance and a favorable compensation ratio. With a market capitalization of $188 billion and trading at a P/E ratio of 16.5x, InvestingPro analysis suggests the stock is currently slightly undervalued.
Goldman Sachs reported earnings per share (EPS) of $11.95, significantly outperforming the consensus estimate of $8.18. This was attributed to a $1.5 billion revenue beat, led by a $475 million surplus in equity trading revenues compared to expectations. The compensation ratio, excluding provisions, was 27.8%, well below the anticipated 32.9%.
The investment banking (IB) backlog saw an increase quarter-over-quarter, bolstered by equity capital markets (ECM) activities. InvestingPro data reveals the company has maintained impressive revenue growth of 12% over the last twelve months, with analysts revising earnings estimates upward for the upcoming period.
The firm achieved a 60% efficiency ratio, aligning with its long-term target. Share buybacks totaled $2.0 billion, exceeding the $1.2 billion consensus estimate. Goldman Sachs also reported a return on tangible common equity (ROTCE) of 15.5%, with a price to tangible book value (P/TBV) of 1.8 times.
In the Global Markets division, investment banking net revenues of $2.1 billion surpassed the $2.0 billion consensus, marking a 24% year-over-year increase. The beat was largely due to ECM revenues of $499 million, up 98% year-over-year, and debt capital markets (DCM) revenues of $595 million, a 51% increase from the previous year. Trading revenues, including other income, amounted to $6.4 billion, a 37% increase year-over-year, driven by a strong performance in equities trading.
Asset & Wealth Management (A&WM) revenues were $4.7 billion, an 8% increase year-over-year, with management fees growing to $2.8 billion. Equity investments contributed significantly with $729 million in revenues, and incentive fees reached $174 million, nearing a medium-term annual target of $1 billion. The A&WM margin stood at 37.2%, with normalized margins around 30.5%.
Lastly, the Personal & Small Business Banking segment reported revenues of $669 million, a 16% year-over-year increase, and a pre-tax margin improvement. Operational expenses were well-managed, resulting in a lower efficiency ratio than expected.
Goldman Sachs concluded the quarter with a capital position highlighted by a higher share repurchase value, a decrease in risk-weighted assets (RWAs), and a slight uptick in the common equity tier 1 (CET1) ratio, finishing the quarter with a tangible book value per share of $316.02.
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