(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Goldman Sachs Group Inc. (GS) has had a terrible 2018, with the stock nearly 13% off its March highs. Even worse, the stock has underperformed the S&P 500 by a wide margin, falling by almost 7%, versus the S&P 500's gain of almost 5.5%. Signs are emerging that the investment bank may be set to rebound as analysts raise their estimates and price targets. Analysts see Goldman rising by an average of 15% from its current price around $237.
The company delivered strong quarterly results beating on both the top and bottom lines. Second-quarter earnings topped estimates by nearly 29%, while revenue topped estimates by more than 7.5%. The better results were driven by strong growth across most of its business units, with trading being the one exception.
After posting the better-than-expected results, analysts have been upping their upcoming third-quarter estimates. Analysts are now looking for the company to grow third-quarter profits by over 9% to $5.51 per share. That is up from prior growth estimates of only 5%. Revenue estimates have also climbed in the days following second-quarter results and are now forecast to rise by nearly 2% to $8.48 billion, up from prior views of being flat versus last year.
Full-year estimates have been revised significantly higher since the results announced July 17. Analysts are now forecasting earnings growth of nearly 25.5% from prior views of approximately 16%, while revenue is expected to grow by 13.6% from roughly 10%.
Lifting Price Target
Because of the better business outlook, analysts have started upping their price targets on the stock once again, after a month of reductions. Since the start of July, the average analysts' price target has increased by nearly 2% to $274, more than 15% higher than the stock’s current price.
Bullish Technical Chart
The technical chart also reflects the bullish business outlook and suggests shares rise by about 10%. The chart has a bullish technical reversal pattern known as a falling wedge. The stock's price has recently increased, moving out of the downtrend. Should the stock rise above technical resistance at $247, about 4% higher than the current stock price, shares could rise all the way to roughly $263, a surge of more than 10%.
With analysts upping their estimates, momentum is slowly returning to Goldman's stock. Should the company continue to deliver better-than-expected results, and the positive business momentum continues into 2019, then the recent stock rebound may turn into something long term.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.