On Mar 16, 2015, we issued an updated research report on The Goldman Sachs Group, Inc. GS. Shares of this New York-based investment manager have recorded a one-year return of 14.4%. Further, Goldman has outpaced the Zacks Consensus Estimate in the last four quarters, with an average beat of 23.7%.
We believe this growth story has been aided by the company’s continued focus on expense management and revenue growth apart from several other positives including a strong capital position, steady capital deployment activities and business diversification.
Organic growth remains a key strength at Goldman, as reflected in its revenue growth. Revenues maintained the level of above $34 billion with an annual marginal increase over the last three years. We believe the company is well positioned to maintain this trend going forward. Notably, from 2012 to 2014, investment banking and investment management generated $2.4 billion of incremental revenues, reflecting the company’s strength of client franchise and the diversity of operations.
Reflecting the company’s successful expense reduction initiatives, total operating expenses declined 1.3% year over year in 2014. Notably, continued disciplined compensation levels and focus on non-compensation expenses has contributed pre-tax margin expansion of 300 basis points since 2012.
In Mar 2015, following the release of the Federal Reserve’s Dodd-Frank Act supervisory stress test 2015 (DFAST 2015) results, Goldman received no objection to the capital distributions reflected in its 2015 Capital Plan. This reflects the company’s commitment to return value to the shareholders with its strong cash generation capabilities.
Nevertheless, regulatory issues and litigations, coupled with fundamental pressures on the banking sector, are expected to weigh on its financials in the coming quarters.
Over the last 30 days, for 2015, the Zacks Consensus Estimate declined slightly to $17.29 per share. Further, it inched down by a penny to $18.94 per share for 2016. Goldman currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some stocks in the same sector worth considering include Cowen Group, Inc. COWN, JMP Group LLC JMP and Investment Technology Group Inc. ITG. All three carry a Zacks Rank #1 (Strong Buy).
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