Goldman Sachs' earnings to boom over the next two years under Trump, UBS predicts

Published Fri, Jan 6 201711:34 AM ESTUpdated Fri, Jan 6 201712:56 PM EST

The potential for Goldman Sachs to deliver better-than-expected earnings over the next two years should prompt investors to get behind the stock, according to analysts at UBS, who boosted their 12-month price forecast on the shares Friday. "We believe we are entering a period where earnings power may inflect for bulge bracket investment banks due to lesser regulatory constraints," equity analyst Brennan Hawken wrote in a note to clients. Other expected changes under President-elect Donald Trump , including lower corporate taxes, higher U.S. interest rates and increased fiscal spending, should generate a favorable business environment for financial institutions, especially Goldman Sachs, according to UBS. UBS increased its 2017 earnings estimates for Goldman Sachs to $20.80 from $18.40, representing an increase of 13 percent. The earnings estimate for 2018 was increased by 20 percent to $24.40 from $20.25. Both figures are significantly higher than the Wall Street consensus. Given the potential for higher earnings, UBS raised its 12-month price target for Goldman Sachs by 22 percent to $285 from $234. The new price target implies the stock could rise 18 percent from Thursday's close. "We believe Goldman's optimization efforts on the expense side in recent years and their hesitance to dramatically change their securities business should make them well positioned to capitalize on an improving environment," Hawken said. Since the U.S. presidential election, shares of Goldman Sachs are up 33 percent compared with a gain of 6 percent for the S & P 500 index and an increase of 17 percent for the Financial Select Sector SPDR Fund . Goldman Sachs, 1 year Source: FactSet UBS says global earnings for financial institutions have been nearly cut in half since 2009, in part due to regulation hurdles that were put in place after the financial crisis, but that trend might change. "In a less onerous regulatory environment, we expect the trends of the past several years could reverse, benefiting firms like GS that have not pulled back dramatically from the businesses previously under pressure," Hawken said. The analyst estimates over the next two years, revenue levels for financial institutions could return to the average levels seen during the 2011 to 2013 period. "We anticipate more share will accrue to the strongest franchises, with Goldman capturing potentially one-fifth of this revenue expansion opportunity," Hawken said.

Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc.

Michael Nagle | Bloomberg | Getty Images

"We believe we are entering a period where earnings power may inflect for bulge bracket investment banks due to lesser regulatory constraints," equity analyst Brennan Hawken wrote in a note to clients.

Other expected changes under President-elect Donald Trump, including lower corporate taxes, higher U.S. interest rates and increased fiscal spending, should generate a favorable business environment for financial institutions, especially Goldman Sachs, according to UBS.