This major bank's stock can rally 25% as deal-making and consumer banking improve, HSBC says

Published Thu, Sep 7 20235:53 AM EDTUpdated Thu, Sep 7 202311:48 AM EDT

Investors shouldn't ignore Goldman Sachs as deal-making regains steam and the consumer banking business turns a corner, according to HSBC. Analyst Saul Martinez initiated coverage of the bank at a buy with a price target of $403. Martinez's target implies an upside of 25.5% from Wednesday's close. "Goldman Sachs is our preferred name in this sector," Martinez said in a note to clients. "We believe the company is uniquely positioned to benefit from both cyclical dynamics and self-help initiatives." HSBC's initiation comes during a unique year for banks, as the closure of Silicon Valley Bank in March unleashed a crisis of confidence in the sector. Goldman shares have underperformed the broader market with a 6.5% loss this year. However, they've outperformed the SPDR S & P Bank ETF (KBE) , which has tumbled more than 15% in 2023. GS .SPX,KBE YTD mountain Goldman Sachs shares versus the S & P 500 and KBE this year Martinez said more deals should help investment banking revenue, which can in turn lead to increased returns in its global banking and markets division. Similarly, losses in platform solutions should fall from the currently elevated levels as investments hit a sustainable level and losses for credit reach a normal point, he said. At the same time, Martinez said the company should feel less pressure on earnings from its failed consumer banking experiments, which he called "costly and largely unsuccessful." The rehabilitation of asset and wealth management to tilt toward third-party money can help improve the unit's return on equities and pretax margins, he added. He said to expect strong growth in revenue and earnings, even as universal and super regional banks struggle. Goldman could also see increased valuation multiples from strong earnings and returns on equity and tangible common shareholders' equity, the analyst said. Martinez said performance could be different than forecast if investment banking doesn't improve or if sales and trading results weaken. Higher capital requirements or management talent leaves could also hurt shares, as could losses on sales of principal investments. — CNBC's Michael Bloom contributed to this report.