Goldman Sachs Valuation Misaligned with Business Performance, Analysts Say

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Citi analysts have downgraded the stock of Goldman Sachs Group to Neutral from Buy, arguing that the bank’s valuation is not in line with its business performance. Despite this downgrade, Citi has raised its target price for the bank’s stock to $400 from $370, indicating a potential gain of 11% from Monday’s closing price.

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Challenges Ahead for Goldman Sachs

The analysts, led by Keith Horowitz, expressed confidence that Goldman Sachs (ticker: GS) can achieve its target of a 15% to 17% return on average tangible common shareholders’ equity (ROTCE). However, they also emphasized that reaching this target will require time as well as a more favorable investment banking environment.

Citi analysts highlighted the uncertainty surrounding Goldman Sachs’ ability to meet its ROTCE target, which they believe is greater than what the current valuation suggests. They pointed out that the stock currently trades at 1.3 times total book value, slightly above its 10-year average of 1.2 times.

A Challenging Transformation Period

“While we believe multiple expansion on less volatile returns is a tough argument to make in the near-term given the company is still in the midst of a transformation,” wrote Horowitz.

Despite their conviction that Goldman Sachs can ultimately achieve its goals, the Citi analysts acknowledged that increased uncertainty warrants caution. They suggested that moving to the sidelines may be a prudent course of action.

“Although we believe management will be able to hit the targets…the uncertainty of executing on its longer-term initiatives leads us to see a more balanced risk/reward for the stock at these levels,” Horowitz stated.

Market Reaction and Closing Remarks

Goldman Sachs stock experienced a 0.5% decline ahead of the open on Tuesday. As of Monday’s close, it has risen by 4.5% in 2023. In comparison, the S&P 500 has recorded a 19% increase year-to-date.

In conclusion, Citi analysts believe that Goldman Sachs’ valuation currently reflects more progress towards the target for return on equity than the business has actually achieved.

Written by Callum Keown

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