Why Key Analyst Sees 20% Upside in Goldman Sachs

By Chris Lange Published Sep 9, 1:55PM EDT

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Goldman Sachs Group Inc. (NYSE: GS) is considered one of the very best investment banks on the market, and one of its peers released a report that sees even more upside. Despite the current market volatility, Merrill Lynch believes that Goldman Sachs can weather this storm and come out ahead in the long run.

Merrill Lynch upgraded Goldman Sachs to a Buy rating from Neutral. It sees roughly 20% total return upside potential to the $220 price objective. Merrill Lynch views Goldman Sachs as attractive, positioned to generate growth, and skilled in regulation, innovation and risk management.

The firm expects Goldman Sachs to be one of the leaders within the sector in terms of navigating a dynamic backdrop and producing premium returns. Given its current valuation, a mostly favorable capital markets outlook and its skill set in innovation/technology, navigating regulation and risk management, Merrill Lynch sees the risk/reward as attractive.

Goldman Sachs has pulled back 15% from its recent highs, which Merrill Lynch views as an attractive valuation and entry point. While the recent volatility could weigh on third-quarter results for Goldman Sachs and the industry, at the current valuation, Merrill Lynch thinks it is more than priced into the shares. Importantly, while ongoing market weakness and volatility could weigh on revenues ahead, this is expected it to be temporary.

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Merrill Lynch’s base case in-line with its strategy/econ team is that the current market volatility and market pressure is transitional, and economic growth is expected to improve and rates to gradually rise once the market digests some of the near-term macro items, which should bode well for the capital markets and Goldman Sachs. In this backdrop, Merrill Lynch expects continued growth in M&A and Equities where Goldman Sachs leads, but as central bank policies diverge and markets no longer have a put option in place, Merrill Lynch expects more healthy volatility ahead, which should bode well for trading and Goldman Sachs, given its business mix.

In its report Merrill Lynch said:

Goldman Sachs is one of the most skilled firms in the industry when it comes to managing through new regulations, innovation, and protecting the franchise in times when risk management matters most. Given our expectations that regulatory shifts will be ongoing, technology / innovation will be key to success in the financial industry ahead, and risk management is of utmost importance (particularly in transitioning times), we view Goldman Sachs as well positioned to navigate and produce attractive returns over time vs. the industry.

Shares of Goldman Sachs were up 1.4% at $188.54 on Wednesday afternoon. The stock has a consensus analyst price target of $217.30 and a 52-week trading range of $171.26 to $218.77.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.