Goldman SachsRecommendation:

BuyIntrinsic Value $228 > $190 Current Price

Mengjia Guan, Vy Le, Yuli QianProfessor Lawrence Souza

Overview

● Background

● Financial Conditions

● Stock Valuation

● Recommendation

Background ● Type: Public● Traded as: NYSE: GS, Dow Jones Industrial Average Component S&P 500 Component● Founded: 1869● Founder: Marcus Goldman, Samuel Sachs● Headquarters: 200 West Street, New York, New York, U.S.● Industry: Banking, Financial services● Area Served: Worldwide● Number of employees: 34,000 (2014)● Market Value of Stock: 189.16 (Nov. 2015)● Assets: $856.24 Billion (2014)

Operation Segment

Segment Net Revenues (End of June 2015, $ in Millions)

Segment Revenue Percentage

Investment Management 9,070 55%

Institutional Client Services 3,600 21%

Investment Banking 2,020 12%

Investing & Lending 1,800 10%

Products and Services

● Advice● Finance● Transact● Support● Manage● Invest● Innovate

Leadership

LLOYD C. BLANKFEINChairman and Chief Executive Officer 1994, 21 yearsHarvard University

GARY D. COHNPresident and Chief Operating Officer1990, 25 yearsAmerican University

MICHAEL SHERWOODVice Chairman1986, 29 yearsManchester University

MARK SCHWARTZVice Chairman and Chairman of Goldman Sachs Asia Pacific1979, 36 yearsAppalachian State University

HARVEY M. SCHWARTZExecutive Vice President and Chief Financial Officer2005, 10 yearsRutgers University

EDITH W. COOPERExecutive Vice President and Global Head of Human Capital Management1996, 19 yearsNorthwestern University

S.W.O.T AnalysisStrength

● Strong brand name and good financial position

● Geographically present across various countries

● Diverse operations and advanced technology

Weakness● Legal issues

● Fluctuating markets create variable revenues

● Controversies like underwriting bonds, European

debt crisis, insider trading have affected image

Opportunity● Expansion in emerging economies

● Diversifying portfolios for customers

● Investment banking is growing

Threats● Changing government regulations and financial

crisis like recessions● Variable interest rates● Declining stock markets

Bank Ranking

Rank Institution Name Total Asset($T)

1 JPMorgan Chase 2.58T

2 Bank of America 2.14T

3 Citigroup 1.83T

4 Well Fargo 1.74T

5 Goldman Sachs 865B

Financial Conditions

Sources: Morningstar

Financial RatiosGoldman

SachsJ.P.

Morgan Wells FargoBank of America Peer group

Industry Average Condition

Profitability (%)

ROA 0.9 0.8 1.3 0.5 8.7 0.8 Good

ROE 10.5 9.8 13.1 4.5 9.1 8.9 Good

Leverage/Liquidity

Profit Margin 34.1 32.0 25.4 20.4 26.0 7.1 Good

Debt to Equity 2.5x 1.5x 1.1x 1.1x 1.2x 2.0x Good

Interest Coverage 2.5x 4.2x 7.7x 2.6x 4.8x 3.2x Below

Overall Good

Financial Conditions

Sources: Morningstar

Financial RatioGoldman

Sachs J.P. Morgan Wells FargoBank of America Peer group

Industry Average Condition

Equity

Forward P/E 9.7x 9.9x 12.1x 10.3x 10.7x 10x Average

Dividend Yield% 1.2 2.6 2.6 1.2 2.1 1.2 Average

Growth Rate

Revenue Growth% 6.2 -1.1 1.4 -3.4 -1 0.3 Good

Net Income Growth% 24.0 4.7 13.3 49.5 22.5 33.6 Below

Overall Average

Technical Analysis

Goldman Sachs● Upward trend line (Momentum)

● Big change in volume coming

● Trending towards $240

Target Price $ 240 > $190 Current Price

Support

Resistance

Trend Line

Valuation: Perpetuity Model

Year 2014 Estimated 2015 Estimated 2016

EPS $17.07 $18.84 $20.54

G 10% 10% 9%

Discount Rate Stock Value Range

ERM: 8% $257 High

WACC: 9% $228 Medium

CAPM: 10% $205 Low

CAPM

Risk-Free Rate 3%

Beta 1.4

ERM 8%

R 10%

Intrinsic Value $205 > $190 Current Price Premium 8%

Valuation: Gordon Growth Model

i \ g 1% 2% 3%

i ERM: 8% $ 293 $ 342 $ 411

i WACC: 9% $ 257 $ 342 $ 342

i CAPM: 10% $ 228 $ 257 $ 293

Intrinsic Value $257 > $190 Current Price Premium 35%

CAPM

Risk-Free Rate 3%

Beta 1.4

ERM 8%

R 10%

Year 2014 Estimated 2015 Estimated 2016

EPS $17.07 $18.84 $20.54

G 10% 10% 9%

Valuation: Multiple Model

P/E Multiple U.S. Bank BOA JPMorgan Wells Fargo Citigroup

Estimated 2015 13.8x 12.2x 11.4x 13.3x 9.7x

P/E Ratio Stock Value Range

13x $ 267 High

12x $ 246 Medium

11x $ 226 Low

Intrinsic Value $226 > $190 Current Price Premium 19%

Valuation: DCF Model

Year 2016 2017 2018 2019 2020 2021-TV

EPS 20.54 21.77 23.07 24.23 25.20 25.70

Growth Rate 9% 6% 6% 5% 4% 2%

PV $19 18 18 17 156 240

Corporate Value $228

Weighted Debt 70%

Weighted Equity 30%

R Debt 10%

R Equity 7.5%

WACC 9%

WACC Stock Value Range

8% $237 High

9% $228 Medium

10% $221 Low

Intrinsic Value $228 > $190 Current Price Premium 20%

Recommendation BUY

Intrinsic Value Scenario 1 Scenario 2 Scenario 3

Perpetuity - $205 5% 10% 25%

Gordon Growth - $257 5% 10% 25%

Multiple - $226 40% 30% 25%

DCF - $228 50% 50% 25%

Weighted Intrinsic Value $227 $228 $229

Intrinsic Value $228 > $190 Current Price Premium 20%

Recommendation BUY

Trades:● Buy Stock● Buy on Margin ● Buy Calls● Write Puts● Buy Financial Services ETFs● Buy Financial Services ETFs on Margin● Buy Calls on Financial Services ETFs● Write Puts on Financial Services ETFs

Intrinsic Value $228 > $190 Current Price

Questions and Answers

Resources

Adubato, Beth. "Goldman Sachs Group Inc." Encyclopedia of White-Collar and Corporate Crime (2013): n. pag. Web.

"Goldman Sachs | Leadership - Executive Officers." Goldman Sachs. N.p., n.d. Web. 30 Nov. 2015.

“Goldman sachs” MBAskool, BrandGuide Banking & Financial Services, Web,30 Nov. 2015.

Yahoo Finance. Goldman Sachs. Web. 30 Nov. 2015.