Goldman Sachs Group Inc Valuation – June 2016 $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 Companies Benjamin Graham Would Invest In Today – March 2016.  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 operates through four segments: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. The Company’s Investment Banking segment provides financial advisory services, which include advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings, spin-offs and risk management. The Company’s Institutional Client Services segment makes markets and facilitates client transactions in fixed income, equity, currency and commodity products. The Company’s investing and lending activities include its investing and relationship lending activities across various asset classes, primarily debt securities and loans, public and private equity securities, and real estate. The Company’s investment management segment provides investment and wealth advisory services.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of GS – June 2016

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 $60,960,090,203 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -20.49% Fail
5. Moderate PEmg Ratio PEmg < 20 10.93 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.76 Pass
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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GS value chart June 2016

EPSmg $13.52
MG Growth Estimate 2.19%
MG Value $174.21
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $196.06
MG Value based on 0% Growth $114.93
Market Implied Growth Rate 1.21%
Current Price $147.75
% of Intrinsic Value 84.81%

Goldman Sachs Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $11.8 in 2012 to an estimated $13.52 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 1.21% 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.

Goldman Sachs Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

GS charts June 2016

Graham Number $217.43
PEmg 10.93
PB Ratio 0.76
Dividend Yield -8.66%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-Term Debt $206,334,000,000
Total Assets $878,036,000,000
Intangible Assets $4,136,000,000
Total Liabilities $791,199,000,000
Shares Outstanding (Diluted Average) 447,400,000

Earnings Per Share History

Next Fiscal Year Estimate $11.60
Dec2015 $12.14
Dec2014 $17.07
Dec2013 $15.46
Dec2012 $14.13
Dec2011 $4.51
Dec2010 $13.18
Dec2009 $22.13
Nov2008 $4.47
Nov2007 $24.73
Nov2006 $19.69
Nov2005 $11.21
Nov2004 $8.92
Nov2003 $5.87
Nov2002 $4.03
Nov2001 $4.26
Nov2000 $6.00
Nov1999 $5.57

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $13.52
Dec2015 $13.88
Dec2014 $14.12
Dec2013 $13.06
Dec2012 $11.80
Dec2011 $11.69
Dec2010 $15.80
Dec2009 $16.89
Nov2008 $14.11
Nov2007 $17.32
Nov2006 $12.39
Nov2005 $8.11
Nov2004 $6.31
Nov2003 $5.05
Nov2002 $4.42
Nov2001 $4.13
Nov2000 $3.49

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – June 2016
Stocks Trading Below Their Graham Number – May 2016
Stocks Trading Below Their Graham Number – March 2016
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – February 2016
12 Best Stocks For Value Investors This Week – 11/14/15

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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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