Morningstar | Increasing Our FVE for Goldman Sachs to $258; New Management Doesn't Portend Change in Strategy
David Solomon has recently taken the reins as CEO of narrow-moat Goldman Sachs and made some management changes, appointing a new CFO and COO, but we don't expect a shift in the company's current strategy. Much of the company's current strategy can be encapsulated in its plan to increase net revenue by $5 billion, which was released about a year ago. We're at the start of the second year of this three-year plan, so even with the change in management, the company shouldn't be quick to announce a new plan, which could rattle investors and analysts. We recently increased our fair value estimate for Goldman Sachs to $258 from $245 per share, and we view shares as fairly valued to slightly undervalued.Some might argue that the changes Goldman Sachs is making to its business model are long overdue. For years following the financial crisis, while peers were making transformational moves, such as Morgan Stanley acquiring the Smith Barney business from Citigroup, Goldman Sachs only made minor changes to its business, such as optimizing its hiring footprint. However, of the company's $5 billion net revenue plan, $3 billion is from formerly less core net interest income and investment management, while only $2 billion is from its more traditional trading and investment banking. We also see the increase in net revenue from net interest income and investment management as more easily achievable, as the company is arguably underpenetrated in those areas with additional environment tailwinds, compared with trading and investment banking, where Goldman Sachs is already a mature player competing with longtime rivals. All of the headlines about the company's online banking platform, Marcus, and movement of Stephen Scherr to CFO from CEO of Goldman Sachs Bank USA are signals that the company is continuing with its current plan of building out its digital banking services.
Goldman Sachs Group is a bank holding company and financial holding company. The company is a global investment banking, securities and investment management firm that provides a range of financial services to corporations, financial institutions, governments and individuals. The company operates in four business segments: Investment Banking, which serves public and private sector clients and provides financial advisory services; Global Markets, which serves its clients who come to the company to buy and sell financial products, raise funding and manage risk; Asset Management, which provides investment services; and Consumer & Wealth Management, which provides a range of wealth advisory and banking services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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