Goldman Sachs Raises 2025 EPS Forecast to $268, Anticipates 11% Year-Over-Year Increase
In a recent note, Goldman Sachs strategists have increased their 2025 earnings per share (EPS) forecast to $268, showing an 11% growth compared to the previous year. This new estimate is higher than the top-down consensus estimate of $265 but falls below the bottom-up consensus estimate of $275.
Additionally, the firm has introduced a 2026 EPS estimate of $288, reflecting a 7% growth, while maintaining their full-year 2024 EPS forecast at $241. The strategists believe that U.S. GDP growth will outperform consensus estimates, but caution that bottom-up EPS estimates tend to be overly optimistic and are often revised downward.
Looking at the near term, analysts have adjusted their expectations for 3Q 2024 EPS growth from 9% to 4%, a significant change from the 11% growth seen in 2Q. Goldman's strategists also note that the S&P 500's current forward price-to-earnings (P/E) ratio of 22x is aligned with fair value, but they anticipate a slight contraction to 21x within the next 12 months.
In terms of market outlook, Goldman Sachs predicts a 3-month S&P 500 price target of 6000, with a 6-month target of 6100 and a 12-month target of 6300. They expect the market to capitalize EPS of $274 by year-end, leading to a 10% price return over the next year.
However, the strategists caution that returns may be constrained by an elevated starting valuation. They outline potential risks to their forecast, noting that if the P/E multiple stays at 22x, the S&P 500 could reach 6600 in 12 months, delivering a 15% upside. On the other hand, if growth weakens, the index could drop to 18x, or 5400, representing a 6% downside.
In conclusion, investors should pay attention to Goldman Sachs' updated outlook as it provides valuable insights into the future direction of the market. By understanding the projected EPS estimates and price targets, individuals can make informed decisions about their investments and financial strategies. It is important to consider the potential risks and market fluctuations highlighted by the strategists to navigate the ever-changing landscape of the financial markets effectively.