Goldman Sachs: ‘Positive Sentiment is Building,’ Still Not Worth Buying, Nomura Says

Once the highest of high-flying bank stocks, Goldman Sachs (GS) has recently been a laggard.

Reuters

Its shares have dropped 5.5% this year, while JPMorgan Chase (JPM) has fallen 2.2%, Bank of America (BAC) has dipped 0.7% and Morgan Stanley (MS) has gained 2.4%.

Nomura’s Steven Chubak and Sharon Leung, however, believe “positive sentiment is building” for Goldman Sachs. They explain:

While Goldman Sachs shares have underperformed YTD (down -6% vs. +3% for S&P Fins.), recent discussions suggest that positive sentiment is building. Despite revenue headwinds in some core businesses (e.g. FICC), growing contribution from higher-multiple segments, coupled with future sources of capital relief (e.g. Volcker sales), should help drive value. We have been more cautious on the shares given "bindingness" concerns, i.e., that the recently proposed Supplementary Leverage Ratio (SLR) will become the binding capital constraint for Goldman Sachs (vs. risk-based measures), dampening long-term ROE potential. However, there are additional capital / earnings levers which could meaningfully improve GS’ ROE profile. Findings indicate the most likely path (deleveraging) could yield as much as a +100-200bp ROE uplift, or 7-14% upside vs. our current TP ($156).

Still, Goldman’s valuation remains a concern so Chubak and Leung leave their rating unchanged at Neutral.

Shares of Goldman Sachs have gained 1% to $167.56 at 10:52 a.m. today, while Morgan Stanley has risen 1.4% to $32.16, Bank of America has advanced 1.1% to $15.45 and JPMorgan is up 0.6% at $57.22.