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Is Goldman Sachs Overly Optimistic About its Revenue Growth?


At the Barclays PLC Investors Conference in New York on Sep 12, 2017, the president of Goldman Sachs Group GS, Harvey Schwartz, unveiled the company’s latest growth plan. The company aims to add $5 billion in revenues annually, which will, in turn, contribute up to $2.5 billion in pre-tax earnings.

Goldman typically keeps its plans secret, but disclosed this plan in the hope of regaining the lost confidence of its investors after two poor quarters in a row. The company witnessed a 40% year-over decline in fixed income trading in the last reported quarter, which turned its investors away.

The firm plans to boost revenues through a variety of ways. Some of these include, increasing the number of asset managers and banks they work with, by trading more in fixed income securities, commodities and currencies. These could help in adding $1 billion in revenues. Goldman also wants to grow its lending and financing portfolio and expects to add $2 billion in revenues through that. Investment banking and equity clients would add $0.5 billion each and the investment management division is expected to contribute $1 billion to the growth.

Analysts don’t seem hopeful about the company’s ability to achieve the target. While an improving industry backdrop might help it executing its plans to great extent, we don’t think it would be easy for the firm to meet the target by offsetting its underlying weakness, at least in the first year.

Shares of Goldman gained around 36% over the past 12 months compared with the industry’s rally of 30.6%.

Zacks Rank & Stocks to Considers

Currently, Goldman carries a Zack Rank #3 (Hold).

Some better-ranked stocks from the finance space are E*TRADE Financial Corporation ETFC, Moelis & Company MC and Raymond James Financial RJF each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E*TRADE Financial witnessed an upward earnings estimate revision of 14.2% for the current year, in the last 60 days. Its share price increased 49.6% in the past 12 months.

Moelis & Company’s Zacks Consensus Estimate was revised 5.7% upward for the current year, in the last 60 days. The company’s share price increased 54.9% in the past 12 months.

Raymond James Financial witnessed upward earnings estimate revision of one cent per share for the current year, in the last 60 days. Its share price increased 37.7% in the past 12 months.

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