Summary
- The stock's intrinsic value is still close to $250, assuming a 10x multiple on the current $26.57 estimate for calendar '22 and 10-12% ROE.
- There is no question the business is changing for GS, and it is pushing to keep up with it.
- You would think FICC would have another record quarter due to issuance volume.
- Book value per the last 10-Q is around $227 per share, so the stock is trading at a 10% discount to book value as of this writing.
- I wonder with SPACs and "direct" IPOs if the old-school banking led IPO is now being disrupted.
It didn't really help that the last few weeks my bedtime reading at night was the "Billion Dollar Whale", the story of the now-infamous Malaysian Jho Low and the pilfering of the 1MDB Malaysian sovereign debt fund, where Low basically spent $12 billion of the fund's proceeds on everything from excessive partying, to artwork, to real estate, to yachts, to you name it, some of the debt issuance aided by the most respected of all former white-shoe firms, Goldman Sachs (GS).
Gary Cohn and Lloyd Blankfein aren't exactly portrayed in a favorable light at the end of the book, particularly after the posturing post-2008, but all that being said, the issue is behind Goldman and it's not worthy of further discussion.
Goldman reports its Q3 '20 financial results on Wednesday, October 14th, before the opening bell, with current Street consensus per IBES by Refinitiv, expecting $5.22 in EPS on $9.25 billion in revenue for expected y/y growth of 9% and 11% respectively.
It was a monster second quarter that Goldman reported in mid-July '20, when the investment banking giant printed $6.26 in earnings per share versus a $3.13 estimate on revenue of $13.3 billion versus the IBES/Refinitiv estimate of $9.76 billion for upside surprises of 100% and 36% respectively.
Goldman's net revenue grew 41% y/y in Q2 '20, generating 8% EPS growth, also y/y.
Q2 '20 results were emblematic of the late 1990s'/early 2000s' monster quarters the investment banks printed in robust markets.
Fixed-income revenue was 120% higher y/y while equity revenue was 60% higher, with fixed income primarily driven by the explosion in corporate bond issuance after Jay Powell lit the lamp in late March/early April '20 announcing the various Fed liquidity programs.
Buyback Impact
Source: Internal valuation s/sheet from earnings releases, 10-Qs
When looking at current forward estimates for Goldman, the current 2022 estimate is $26.57 (that estimate has been moving higher since the summer), which given a reasonable 10x multiple would put a reasonable valuation of $265 on the stock.
The stock's high in 2020 was in $250.46 on January 22, 2020, thus I don't see any reason that the stock can't trade up there again given the trend in estimates for 2021 and 2022.
However, for companies owned for clients, a lot of fundamental valuation is done on the holdings, and the above Excel spreadsheet shows that - for any given quarter in the last five years - the "trailing twelve-month" share repurchases have amounted to anywhere from 4% to 10% of the market cap for any given quarter.
