Financial Services Stocks

Goldman Sachs Group Inc. Valuation – November 2015 Update $GS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Goldman Sachs Group Inc. (GS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Goldman Sachs Group, Inc. is a bank holding company and a financial holding company. The Company is a global investment banking, securities and investment management company that provides a range of financial services to a diversified client base that include corporations, financial institutions, Governments and individuals. The Company has four business segments. The Investment Banking segment’s services include strategic advisory assignments and debt and equity underwriting of public offerings and private placements. Its Institutional Client Services segment makes markets and facilitates client transactions in fixed income, equity, currency and commodity products. Its investing and lending activities include the Company’s investing and relationship lending activities across various asset classes, primarily debt securities and loans, public and private equity securities, and real estate. Its investment management segment provides investment and wealth advisory services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GS – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $83,434,889,024 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -3.05% Fail
5. Moderate PEmg Ratio PEmg < 20 13.23 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.02 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GS value Chart November 2015

EPSmg $14.79
MG Growth Estimate 3.97%
MG Value $243.19
Opinion Fairly Valued
MG Value based on 3% Growth $214.39
MG Value based on 0% Growth $125.68
Market Implied Growth Rate 2.37%
Current Price $195.67
% of Intrinsic Value 80.46%

Goldman Sachs Group Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $11.69 in 2011 to an estimated $14.79 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.37% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Goldman Sachs Group Inc. (GS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

GS Charts November 2015

Graham Number $243.17
PEmg 13.23
PB Ratio 1.02
Dividend Yield 1.28%
Number of Consecutive Years of Dividend Growth 4

 

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Most Recent Balance Sheet Figures

Long-Term Debt $201,039,000,000
Total Assets $880,559,000,000
Intangible Assets $4,168,000,000
Total Liabilities $792,856,000,000
Shares Outstanding (Diluted Average) 458,600,000

Earnings Per Share History

Next Fiscal Year Estimate $14.87
Dec14 $17.07
Dec13 $15.46
Dec12 $14.13
Dec11 $4.51
Dec10 $13.18
Dec09 $22.13
Nov08 $4.47
Nov07 $24.73
Nov06 $19.69
Nov05 $11.21
Nov04 $8.92
Nov03 $5.87
Nov02 $4.03
Nov01 $4.26
Nov00 $6.00
Nov99 $5.57

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $14.79
Dec14 $14.12
Dec13 $13.06
Dec12 $11.80
Dec11 $11.69
Dec10 $15.80
Dec09 $16.89
Nov08 $14.11
Nov07 $17.32
Nov06 $12.39
Nov05 $8.11
Nov04 $6.31
Nov03 $5.05
Nov02 $4.42
Nov01 $4.13
Nov00 $3.49
Nov99 $1.86

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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