Goldman Sachs (NYSE:GS) shares dipped modestly (-0.5%) in pre-open trading Tuesday after analysts at Citi downgraded the stock, saying the valuation is ahead of itself.
Analysts cut their rating on the stock to Neutral from Buy, while lifting their price target to $400 from $370.
“With GS trading at ~1.3x TBV slightly ahead of its historical multiple, we believe risk/reward is balanced at these levels and downgrade to Neutral,” the analysts commented.
During its last Analyst Day, the analysts noted that management presented a 15-17% ROTCE target and various KPIs for progress tracking. 2Q23 results demonstrated ongoing progress on these KPIs, despite a modest 9% adjusted return. They consider the ROTCE target achievable but acknowledge that it will require time and a more favorable investment banking environment, where GS has significant exposure through Global Banking & Markets (GBM) and Asset & Wealth Management (AWM) (high-return businesses with leverage and incentive fees).
The analysts view AWM as key to unlocking firmwide mid-teens returns with the trade-off being moderated tangible book value (TBV) growth.
Reducing on-balance sheet investments should free up ~$9 billion of capital, but they don't expect outsized TBV growth ahead. They estimate ~9% TBV growth through YE 2024, compared to some regionals with 30%+ TBV growth over the same period. However, it should lead to higher multiples over time.