On Tuesday, CFRA raised its rating on Goldman Sachs (NYSE:GS) shares from Buy to Strong Buy and increased the price target to $553 from the previous $540. The financial research firm cited the stock’s recent dip and potential for earnings growth as the basis for the upgrade.
The analyst from CFRA maintained earnings per share (EPS) estimates for Goldman Sachs at $38.00 for 2024 and $41.00 for 2025, which align with consensus estimates. The new price target is based on a forward price-to-earnings (P/E) ratio of 13.5 times the firm's 2025 earnings estimate. This valuation is consistent with that of Goldman Sachs' direct peers, whereas the current valuation stands at 11.3 times.
Goldman Sachs' limited exposure to interest rate pressures was highlighted as a key factor in its favor. With only 14% of its total net revenue in the first half of 2024 stemming from net interest income (NII), the firm is less affected by rate fluctuations compared to larger U.S. banks, which derive 60%-70% of their total net revenue from NII.
The analyst also pointed to the expected recovery in investment banking for the years 2024-2025 from the 2023 cycle trough, which could particularly benefit Goldman Sachs as a global leader in the sector. Furthermore, the firm's ongoing strategy to concentrate on its core businesses and generate more stable, recurring fee revenue in Asset Wealth Management was seen as a positive move.
Lastly, CFRA sees potential for Goldman Sachs to increase transaction fees and expand its alternative assets portfolio. The firm has set a "through-the-cycle" return on equity (ROE) target of 15%-17%, which suggests confidence in its financial performance going forward.
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