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Goldman (GS) Continues to Face Headwinds: Time to Sell?

On Apr 5, 2016, we issued an updated research report on The Goldman Sachs Group, Inc. GS. Notably, the shares of this New York-based investment manager have dropped more than 11.9% year to date.  

A challenging environment with low client activity levels continues to affect the Institutional Client Services division. Notably, net revenues in Fixed Income, Currency and Commodities Client Execution witnessed a 13% year over year decline in 2015.

Further, Goldman continues to face many investigations and lawsuits from investors and regulators. Though the company resolved certain litigations and proceedings, many of the cases are yet to be settled. This may result in increased expenses and litigation provisions in the near term. Additionally, stricter capital requirement is expected to reduce Goldman’s flexibility with respect to its business investments to some extent.

Nevertheless, the company remains focused on expense management and revenue growth apart from maintaining a strong capital position and steady capital deployment activities.

Notably, during 2015, revenues were at a level above $34 billion, backed by strong financial advisory revenues. We believe Goldman is well positioned to maintain this trend, going forward. From 2012 to 2014, investment banking and investment management generated $2.4 billion of incremental revenues, reflecting the company’s strong client franchise and the diversity of operations.

Over the past 30 days Zacks Consensus Estimate declined 1.2% to $17.33 per share for 2016. Also, for 2017, it declined nearly 1% to $19.35 per share. Goldman currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some finance stocks worth considering include Piper Jaffray Companies PJC sporting a Zacks Rank #1 (Strong Buy), while First Interstate Bancsystem Inc. FIBK and Peoples Bancorp Inc. PEBO carry a Zacks Rank #2 (Buy).

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