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Vy Le_Goldman Sachs Stock Valuatio Project

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Vy Le_Goldman Sachs Stock Valuatio Project

  1. 1. Goldman Sachs Recommendation: Buy Intrinsic Value $228 > $190 Current Price Mengjia Guan, Vy Le, Yuli Qian Professor Lawrence Souza
  2. 2. Overview ● Background ● Financial Conditions ● Stock Valuation ● Recommendation
  3. 3. 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)
  4. 4. 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%
  5. 5. Products and Services ● Advice ● Finance ● Transact ● Support ● Manage ● Invest ● Innovate
  6. 6. Leadership LLOYD C. BLANKFEIN Chairman and Chief Executive Officer 1994, 21 years Harvard University GARY D. COHN President and Chief Operating Officer 1990, 25 years American University MICHAEL SHERWOOD Vice Chairman 1986, 29 years Manchester University MARK SCHWARTZ Vice Chairman and Chairman of Goldman Sachs Asia Pacific 1979, 36 years Appalachian State University HARVEY M. SCHWARTZ Executive Vice President and Chief Financial Officer 2005, 10 years Rutgers University EDITH W. COOPER Executive Vice President and Global Head of Human Capital Management 1996, 19 years Northwestern University
  7. 7. S.W.O.T Analysis Strength ● 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
  8. 8. 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
  9. 9. Financial Conditions Sources: Morningstar Financial Ratios Goldman Sachs J.P. Morgan Wells Fargo Bank 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
  10. 10. Financial Conditions Sources: Morningstar Financial Ratio Goldman Sachs J.P. Morgan Wells Fargo Bank 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
  11. 11. 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
  12. 12. 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%
  13. 13. 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%
  14. 14. 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%
  15. 15. 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%
  16. 16. 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%
  17. 17. 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
  18. 18. Questions and Answers
  19. 19. 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.

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