On Tuesday, CFRA upgraded shares of Goldman Sachs (NYSE:GS) from Hold to Buy, increasing the price target to $430 from $388. The firm anticipates a rebound in investment banking in 2024, which they believe will favorably impact Goldman Sachs as a leading global institution.
The upgrade reflects confidence in the company's strategic shift towards its core businesses and the pursuit of more stable, recurring fee revenue in Asset & Wealth Management.
CFRA analyst cited a broader risk premium and Goldman Sachs' historical average normalized P/E ratio of 12.0x to justify the raised price target to $430, based on a 12.5x forward P/E. The undervaluation of the shares compared to the potential upswing in transaction fee activities, including debt and equity underwriting as well as M&A advisory services, was highlighted as a key factor for the upgrade.
Early indications of increased capital raising and M&A activities were noted, with a reference to the positive CEO confidence measure reported on February 8, which rose to 53, up from 46 in the fourth quarter. The analyst pointed out that this could be a sign of emerging opportunities in the market.
Additionally, the report mentioned a significant opportunity in the backlog of private equity funds needing to liquidate investments through IPOs or other transactions. This pent-up demand is expected to generate more business for firms like Goldman Sachs.
The analyst also emphasized Goldman Sachs' management's efforts to decrease the firm's capital intensity and to mitigate earnings volatility. With a targeted return on equity (ROE) of 15%-17% through the economic cycle, the company is positioned to capitalize on these market opportunities.
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