vy le_goldman sachs stock valuatio project
TRANSCRIPT
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Goldman SachsRecommendation:
BuyIntrinsic Value $228 > $190 Current Price
Mengjia Guan, Vy Le, Yuli QianProfessor Lawrence Souza
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Overview
● Background
● Financial Conditions
● Stock Valuation
● Recommendation
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Background ● Type: Public● Traded as: NYSE: GS, Dow Jones Industrial Average Component S&P 500 Component● Founded: 1869● Founder: Marcus Goldman, Samuel Sachs● Headquarters: 200 West Street, New York, New York, U.S.● Industry: Banking, Financial services● Area Served: Worldwide● Number of employees: 34,000 (2014)● Market Value of Stock: 189.16 (Nov. 2015)● Assets: $856.24 Billion (2014)
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Operation Segment
Segment Net Revenues (End of June 2015, $ in Millions)
Segment Revenue Percentage
Investment Management 9,070 55%
Institutional Client Services 3,600 21%
Investment Banking 2,020 12%
Investing & Lending 1,800 10%
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Products and Services
● Advice● Finance● Transact● Support● Manage● Invest● Innovate
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Leadership
LLOYD C. BLANKFEINChairman and Chief Executive Officer 1994, 21 yearsHarvard University
GARY D. COHNPresident and Chief Operating Officer1990, 25 yearsAmerican University
MICHAEL SHERWOODVice Chairman1986, 29 yearsManchester University
MARK SCHWARTZVice Chairman and Chairman of Goldman Sachs Asia Pacific1979, 36 yearsAppalachian State University
HARVEY M. SCHWARTZExecutive Vice President and Chief Financial Officer2005, 10 yearsRutgers University
EDITH W. COOPERExecutive Vice President and Global Head of Human Capital Management1996, 19 yearsNorthwestern University
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S.W.O.T AnalysisStrength
● Strong brand name and good financial position
● Geographically present across various countries
● Diverse operations and advanced technology
Weakness● Legal issues
● Fluctuating markets create variable revenues
● Controversies like underwriting bonds, European
debt crisis, insider trading have affected image
Opportunity● Expansion in emerging economies
● Diversifying portfolios for customers
● Investment banking is growing
Threats● Changing government regulations and financial
crisis like recessions● Variable interest rates● Declining stock markets
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Bank Ranking
Rank Institution Name Total Asset($T)
1 JPMorgan Chase 2.58T
2 Bank of America 2.14T
3 Citigroup 1.83T
4 Well Fargo 1.74T
5 Goldman Sachs 865B
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Financial Conditions
Sources: Morningstar
Financial RatiosGoldman
SachsJ.P.
Morgan Wells FargoBank of America Peer group
Industry Average Condition
Profitability (%)
ROA 0.9 0.8 1.3 0.5 8.7 0.8 Good
ROE 10.5 9.8 13.1 4.5 9.1 8.9 Good
Leverage/Liquidity
Profit Margin 34.1 32.0 25.4 20.4 26.0 7.1 Good
Debt to Equity 2.5x 1.5x 1.1x 1.1x 1.2x 2.0x Good
Interest Coverage 2.5x 4.2x 7.7x 2.6x 4.8x 3.2x Below
Overall Good
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Financial Conditions
Sources: Morningstar
Financial RatioGoldman
Sachs J.P. Morgan Wells FargoBank of America Peer group
Industry Average Condition
Equity
Forward P/E 9.7x 9.9x 12.1x 10.3x 10.7x 10x Average
Dividend Yield% 1.2 2.6 2.6 1.2 2.1 1.2 Average
Growth Rate
Revenue Growth% 6.2 -1.1 1.4 -3.4 -1 0.3 Good
Net Income Growth% 24.0 4.7 13.3 49.5 22.5 33.6 Below
Overall Average
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Technical Analysis
Goldman Sachs● Upward trend line (Momentum)
● Big change in volume coming
● Trending towards $240
Target Price $ 240 > $190 Current Price
Support
Resistance
Trend Line
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Valuation: Perpetuity Model
Year 2014 Estimated 2015 Estimated 2016
EPS $17.07 $18.84 $20.54
G 10% 10% 9%
Discount Rate Stock Value Range
ERM: 8% $257 High
WACC: 9% $228 Medium
CAPM: 10% $205 Low
CAPM
Risk-Free Rate 3%
Beta 1.4
ERM 8%
R 10%
Intrinsic Value $205 > $190 Current Price Premium 8%
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Valuation: Gordon Growth Model
i \ g 1% 2% 3%
i ERM: 8% $ 293 $ 342 $ 411
i WACC: 9% $ 257 $ 342 $ 342
i CAPM: 10% $ 228 $ 257 $ 293
Intrinsic Value $257 > $190 Current Price Premium 35%
CAPM
Risk-Free Rate 3%
Beta 1.4
ERM 8%
R 10%
Year 2014 Estimated 2015 Estimated 2016
EPS $17.07 $18.84 $20.54
G 10% 10% 9%
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Valuation: Multiple Model
P/E Multiple U.S. Bank BOA JPMorgan Wells Fargo Citigroup
Estimated 2015 13.8x 12.2x 11.4x 13.3x 9.7x
P/E Ratio Stock Value Range
13x $ 267 High
12x $ 246 Medium
11x $ 226 Low
Intrinsic Value $226 > $190 Current Price Premium 19%
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Valuation: DCF Model
Year 2016 2017 2018 2019 2020 2021-TV
EPS 20.54 21.77 23.07 24.23 25.20 25.70
Growth Rate 9% 6% 6% 5% 4% 2%
PV $19 18 18 17 156 240
Corporate Value $228
Weighted Debt 70%
Weighted Equity 30%
R Debt 10%
R Equity 7.5%
WACC 9%
WACC Stock Value Range
8% $237 High
9% $228 Medium
10% $221 Low
Intrinsic Value $228 > $190 Current Price Premium 20%
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Recommendation BUY
Intrinsic Value Scenario 1 Scenario 2 Scenario 3
Perpetuity - $205 5% 10% 25%
Gordon Growth - $257 5% 10% 25%
Multiple - $226 40% 30% 25%
DCF - $228 50% 50% 25%
Weighted Intrinsic Value $227 $228 $229
Intrinsic Value $228 > $190 Current Price Premium 20%
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Recommendation BUY
Trades:● Buy Stock● Buy on Margin ● Buy Calls● Write Puts● Buy Financial Services ETFs● Buy Financial Services ETFs on Margin● Buy Calls on Financial Services ETFs● Write Puts on Financial Services ETFs
Intrinsic Value $228 > $190 Current Price
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Questions and Answers
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Resources
Adubato, Beth. "Goldman Sachs Group Inc." Encyclopedia of White-Collar and Corporate Crime (2013): n. pag. Web.
"Goldman Sachs | Leadership - Executive Officers." Goldman Sachs. N.p., n.d. Web. 30 Nov. 2015.
“Goldman sachs” MBAskool, BrandGuide Banking & Financial Services, Web,30 Nov. 2015.
Yahoo Finance. Goldman Sachs. Web. 30 Nov. 2015.