JMP Securities upgraded its outlook on Goldman Sachs (NYSE: GS) on Tuesday, raising its stock price target to $460 from $440, while maintaining a Market Outperform rating. The firm’s analysis suggests that Goldman Sachs’ valuation gap versus rival Morgan Stanley could narrow as market conditions normalize.
Commentary from JMP Securities highlighted that Goldman Sachs has been favored over Morgan Stanley in recent quarters. This preference is based on the belief that the valuation discount for Goldman Sachs was too significant and that its return on equity (ROE) would surpass that of Morgan Stanley as capital markets normalize.
Goldman Sachs showed a year-to-date (YTD) performance increase of 6%, outpacing Morgan Stanley’s lack of growth. This continues a trend seen over the past three years, where Goldman Sachs has consistently outperformed Morgan Stanley by a few hundred basis points annually.
JMP Securities pointed out that while Goldman Sachs is on track to close the valuation gap with Morgan Stanley, full convergence is not expected due to differences in business mix and earnings profiles. Even so, JMP Securities sees potential for a rise in the value of Goldman Sachs stock, citing its trading at 9.9 times the company’s estimated earnings per share (EPS) for 2025 and 1.4 times the price compared to tangible book value (TBV). In contrast, Morgan Stanley trades at 13.4 times estimated 2025 EPS and 2.3 times price/TBV, which JMP Securities considers a fair price.
The rating indicates that while both companies stand to benefit from a capital markets recovery, Morgan Stanley may face headwinds from a possible normalization of interest rates. This view is not seen as a negative reflection on Morgan Stanley’s business model, but rather as an observation that its valuation already represents a more normalized return profile, while Goldman Sachs’ valuation has been temporarily undervalued.
Insights on InvestingPro
Goldman Sachs (NYSE: GS) has been a topic of interest following JMP Securities’ updated outlook, and real-time data from InvestingPro further enriches the outlook on the company’s financial health and market performance. With a solid market capitalization of $140.77 billion and a P/E ratio of 17.85, Goldman Sachs stands out as a prominent player in the capital markets industry. The adjusted P/E ratio for the trailing twelve months as of Q4 2023 is even more attractive at 15.47, highlighting the company’s profitability which is also supported by a gross profit margin of 83.16% for the same period.
Tips from InvestingPro reveal that Goldman Sachs has not only increased its dividend for 12 consecutive years, but has also maintained dividend payments for 26 consecutive years, underscoring its commitment to shareholder returns. Additionally, the company’s liquidity exceeds short-term obligations, ensuring financial stability and resilience. For investors looking for long-term performance, it is interesting to note that Goldman Sachs has seen significant price upside over the past six months, with a total return of 33.34%, and has maintained a strong return over the past five years.
For those considering investing in Goldman Sachs, there are additional InvestingPro tips that could provide more in-depth information on the company’s financials and market forecasts. Using the coupon code PRONEWS24, investors can get an additional 10% discount on one-year or two-year Pro and Pro+ subscriptions, offering a more comprehensive investment analysis tool. With the next earnings date scheduled for April 16, 2024 and the stock market near its 52-week high, this information could be timely for making informed investment decisions.
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