This Investment Bank Has 30% Upside Potential
Narrow-moat Goldman Sachs isn't getting enough credit for its new initiatives.
Michael Wong: Narrow-moat Goldman Sachs is currently trading at around tangible book value, and it has over 30% upside to our fair value estimate. Many investment banks have had a relatively slow start to the year, but Goldman Sachs still had an annualized 11.7% return on tangible equity during the first quarter, which generally would justify the company trading at a premium to its tangible book value. Our fair value estimate correlates to a price/tangible book value of about 1.3 times and a normalized return on tangible common equity of 13% to 14%.
The most interesting part of the Goldman Sachs story right now is the market not giving the company credit for all of the initiatives that the company has in the pipeline. This reminds us a lot of the period right after Morgan Stanley did its JV with Smith Barney, where it was fairly clear to us that Morgan Stanley was increasing its proportion of capital light and relatively steady earnings that would improve return on equity, and the path to increase those earnings was fairly clear. Goldman Sachs is doing something similar but about a decade later.
Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.