On Tuesday, JMP Securities updated its outlook on Goldman Sachs (NYSE: GS), increasing the share price target to $460 from $440 while maintaining a Market Outperform rating. The firm's analysis suggests that Goldman Sachs' valuation gap with competitor Morgan Stanley may narrow as market conditions normalize.
The 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 Morgan Stanley's with the normalization of capital markets.
Goldman Sachs has shown 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 consistently outperformed Morgan Stanley by a few hundred basis points annually.
JMP Securities pointed out that while Goldman Sachs is on a path to close the valuation gap with Morgan Stanley, a full convergence is not expected due to differences in business mix and earnings profiles. Even so, JMP Securities sees potential for Goldman Sachs' stock value to rise, citing its trading at 9.9 times the firm's estimated earnings per share (EPS) for 2025 and 1.4 times the price to tangible book value (TBV). In contrast, Morgan Stanley is trading at 13.4 times the estimated 2025 EPS and 2.3 times price/TBV, which JMP Securities views as fairly priced.
The assessment indicates that although both firms may benefit from a recovery in capital markets, Morgan Stanley could face headwinds from an eventual interest rate normalization. This view is not seen as a negative reflection on Morgan Stanley's business model but rather an observation that its valuation already accounts for a more normalized return profile, whereas Goldman Sachs' valuation was temporarily mispriced.
InvestingPro Insights
Goldman Sachs (NYSE: GS) has been a topic of interest following JMP Securities’ updated outlook, and real-time data from InvestingPro further enriches the perspective 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 last 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.
InvestingPro Tips reveal that Goldman Sachs has not only raised its dividend for 12 consecutive years but has also maintained dividend payments for 26 consecutive years, underscoring its commitment to shareholder returns. Furthermore, the company's liquid assets exceed short-term obligations, providing financial stability and resilience. For investors looking for long-term performance, it's noteworthy that Goldman Sachs has experienced a significant price uptick over the last six months, with a 33.34% total return, and has maintained a strong return over the last five years.
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