Goldman Sachs Earnings: Strong Start to Year as Investment Banking and Trading Power Results

Key Morningstar Metrics for Goldman Sachs

• Fair Value Estimate: $417.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Goldman Sachs’ Earnings

Investment banking revenue is recovering from recently depressed levels, but strong trading results overshadowed this. Goldman Sachs GS reported net income to common shareholders of $3.9 billion, or $11.58 per diluted share, on $14.2 billion of net revenue. Investment banking revenue increased 32% from a year ago and 26% from the previous quarter to $2.1 billion. However, commissions and market-making revenue of $7.1 billion was about 8% higher than last year and 60% higher sequentially. The annualized return on equity for the quarter was 14.8%, and the return on tangible common equity was 15.9%. We don’t anticipate making a material change to our $417 fair value estimate and assess that shares are fairly valued.

The timing and magnitude of interest rate cuts have recently become more uncertain in the United States. However, the economy remains strong, and most still expect rates to trend lower over the next few years. Given this generally positive backdrop, we expect investment banking to continue to recover in 2024, with the growth in the first quarter being concrete evidence of the increasing willingness of corporations and investors to engage in the capital markets.

Trading revenue (about 50% of total revenue in the quarter) remains a wild card. This quarter was abnormally strong at over $7 billion, but it’s more a question of whether “normal” is closer to the $3.5 billion pre-covid level or the $5 billion-$6 billion post-covid level. We’re currently modeling somewhere in between at around $4.5 billion.