If you look at Goldman Sachs’ (NYSE: GS) 70% gain over the last nine months and wonder how much higher it can go, the answer is a lot. The uptrend is supported by revenue and earnings quality, an outlook for double-digit growth in the next fiscal year, and robust sell-side support that shows no signs of stopping. The takeaways from the Q2 results are that headwinds are present but overcome by operational strengths, a healthy balance sheet, and growing capital returns.
Among the highlights of the Q2 report is a 9% increase in the dividend. This is the 12th consecutive increase, and although the pace of distribution has slowed, the outlook for sustained increases is sound. The current payout is less than 20% of the earnings, leaving ample room for theoretical increases and share repurchases. Share repurchases aid the outlook for share prices, falling by an average of 3% in the quarter, helping to lift the book value by 6%.
Goldman Sachs had a Strong Quarter Driven by Asset Management
Goldman Sachs had a strong quarter driven by growth in all operating segments. However, the 1.5% gain in Platform Solutions is overshadowed by the 13% gain in Global Banking & Markets and a 27% gain in Asset & Wealth Management. The salient detail is that diversified operations led to 17% top-line growth, outperforming consensus by 300 basis points.
Margin news is also good. The company delivered a relatively flat margin compared to the prior year, resulting in a significant increase in earnings compounded by the lower share count. The GAAP EPS, aided by reduced credit reserves and historically high NII, came in at $8.62, up 180%. Goldman Sachs doesn’t give guidance but shows momentum in its deal pipeline that should sustain strong results through the year’s end.
The balance sheet is a fortress, alleviating liquidity concerns and strengthening the outlook for capital returns. The common Tier 1 capital ratio improved by 20 bps to 14.8% and is well above the minimum.
Sell-Side Support is Strong for Goldman Sachs, Leading the Market Higher
Analysts' upgrades and revisions are central to the uptrend in the Goldman Sachs Group's stock price, which is not over. MarketBeat.com tracks seven revisions following the release, all including an increased price target. The consensus target lags the price action by 6% but is up 25% YoY and rising now. The fresh revisions include a new high price target of $565 and lead the market to the ranges’ high end, good for a new all-time high and a potential gain of 10%.
Institutions are also buying this stock. Although institutional activity has been mixed over the last year, it shifted to net buying in Q4 2023 and ramped up in Q1 2024. The increase in buying held steady in Q2 and continued into Q3, helping to support the uptrend. Institutions own about 71% of the stock, so their updraft is strong.
Insiders are selling, but this is not a red flag; the sales are consistent with share-based compensation, and the impact is minute and offset by share buybacks. Insiders own only 0.5% of the stock.
Goldman Sachs' Rally Strengthens
Goldman Sachs has trended higher and can continue to increase because momentum is building, and there is room for the market to run. The stochastic oscillator has entered overbought territory but can stay there indefinitely during a strong uptrend. The MACD oscillator is not overbought, and the histogram peak converges with the new highs, consistent with a strengthening market. Shares of Goldman Sachs will likely experience periodic consolidations and corrections but can trend higher until the growth outlook weakens. That may not be for several years due to the interest rate cycle; falling rates will invigorate activity and support business for this and other financial services companies.
