MW 'New playbook' on Wall Street powers Goldman Sachs price boost, says analyst
By Steve Gelsi
Citi's Keith Horowitz flags already-lofty valuation for Goldman's stock, but says it could go higher amid deal optimism
Goldman Sachs Group Inc.'s stock has already risen about 51% this year on an expected jump in its core deal-making and wealth management businesses, but Citigroup analyst Keith Horowitz said Thursday he sees a little more room for it to run.
While Horowitz stuck to his neutral rating for Goldman Sachs $(GS)$ because he sees "better risk/return elsewhere," he raised his price target for the stock to $585 a share.
That's relatively close to the stock's closing price of $581.90 a share on Wednesday, but $100 above his earlier price target for Goldman Sachs stock.
The stock was up 0.3% in premarket trading on Thursday.
Looking back at the ten-year performance of Goldman Sachs stock, Horowitz said it's typically traded at a multiple of 0.9 times to 1.6 times total book value.
At last check, the stock was trading at 1.9 times total book value.
"The question is whether we overshot or are we dealing with a new playbook?" Horowitz said.
In the case of Goldman Sachs, the "new playbook" seems to the case, with the company's stock price now reflecting the expectation of a return on tangible common equity (ROTCE) of 17%, well above the 10-year historical trading range that was based on an estimated 14% ROTCE.
Horowitz said the higher ROTCE expectation of 17% seems realistic to Wall Street because "the near-term outlook seems brighter now" and likely leading to more optimistic of a "glass half full" approach to the stock.
"It is challenging to push too hard against this narrative, and we raise our target price to $585," he said.
For his part, Horowitz issued a more modest forecast of 16% normalized ROTCE for Goldman Sachs, up from his earlier view of 15% ROTCE.
He also boosted his 2024 earnings estimate for Goldman Sachs by 15 cents a share to $36.65 a share due to an expected rebound in capital markets activity. That's a little ahead of the FactSet consensus estimate of $36.62 a share.
He also raised his 2025 earnings estimate for the bank by $4.15 a share to $46.65 a share, ahead of the FactSet consensus estimate of $42.48 a share.
Earlier this week, Horowitz made similar observations about a more bullish mood on Wall Street when he reiterated a neutral rating on JPMorgan Chase & Co.'s stock $(JPM)$ and raised its price target to $250 a share from $215 a share.
"Over the course of the past eighteen months, we have seen a significant shift in investor sentiment from late cycle concerns to more early cycle optimism, pushing the bank stocks closer to peak valuations," Horowiz said. "Our base case is this early cycle sentiment can persist in the near-term."
JPMorgan Chase's stock was up 0.2% in premarket trading on Thursday,
-Steve Gelsi
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November 21, 2024 07:18 ET (12:18 GMT)
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