Are Macquarie shares in the buy zone?

What is Goldman Sachs saying about this investment bank?

| More on:
Two smiling work colleagues discuss an investment or business plan at their office.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Macquarie Group Ltd (ASX: MQG) shares ended last week in the red.

Investors were hitting the sell button in response to the release of the investment bank's FY 2024 results.

In case you missed it, Macquarie posted a 12% decline in net operating income to $16,887 million and a 32% fall in net profit to $3,522 million.

This was driven largely by weakness in the Macquarie Asset Management and Commodities and Global Markets businesses.

These businesses reported sizeable 48% and 47% declines in earnings, respectively, over the prior corresponding period.

And while this was actually slightly ahead of expectations, with the consensus estimate of $3,512 million, investors appear to believe that its outlook commentary pointed to weaker-than-expected earnings for the year ahead.

Should you buy Macquarie shares?

The team at Goldman Sachs has been running the rule over the result.

According to the note, the broker was reasonably pleased with its better-than-expected performance during FY 2024. However, it notes that this outperformance was due to a lower tax rate. It also highlights that management's guidance is pointing to Macquarie falling short of expectations in FY 2025. The broker said:

MQG's better than expected FY24 performance was driven by a lower than expected tax rate rather than strength in revenues, and we note management guidance for FY25 implied downside risk to prior estimates.

But the broker remains a fan of Macquarie. It adds:

Despite this, we remain optimistic on the business's medium term outlook, given i) an improving macro backdrop (we note GS now expects the rate cutting cycle to commence in November), and ii) MQG is well positioned to benefit from the global push towards decarbonisation, further infrastructure investment, and interest rates reaching their peak levels.

However, it is not enough for Goldman to upgrade Macquarie's shares to a buy rating.

It believes that its shares are looking fully valued based on historic multiples and thinks that investors should wait for a better entry point before pushing the buy button on their brokerage account. It said:

[W]ith the stock trading on a revised FY25E PER of 17x, which is c.15% above its 15-year average of 14.4x, and offering very little potential TSR against our revised TP, we stay Neutral.

Goldman has retained its neutral rating and trimmed its price target to $178.74. Based on the current Macquarie share price of $183.83, this implies a potential downside of just under 3%.

If you include its forecast dividend yield of 3.5%, investors would generate a very modest 0.75% return over the next 12 months if Goldman is on the money with its recommendation.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

excited investor making fist at computer screen
Bank Shares

Would I be crazy to buy CBA shares at $121?

The CBA share price is close to an all-time high.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

What's the dividend yield of NAB shares right now?

What’s the size of NAB’s payout?

Read more »

A woman standing on the street looks through binoculars.
Bank Shares

Here is the earnings forecast through to 2026 for ANZ shares

Dividend investors will be keen to see what's on the horizon for ANZ.

Read more »

Happy man working on his laptop.
Bank Shares

ASX 200 bank stock smashing the benchmark on Friday as a key metric strengthens

Investors are sending the ASX 200 bank stock surging on Friday. But why?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
52-Week Highs

Why is the CBA share price setting a new all-time high today?

Australia's biggest bank just became more expensive. What is driving the demand?

Read more »

Bank building with the word bank in gold.
Bank Shares

Here's what Wilsons is saying about ANZ, CBA, NAB, and Westpac shares

What are its analysts saying about the big four banks following their updates?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Is the CBA share price heading back to $100?

This bank stock may be overvalued and headed down according to one broker.

Read more »

Hand with Australian dollar notes handing the money to another hand symbolising ex-dividend date.
Bank Shares

Here's the ANZ dividend forecast through to 2026

The banking giant will be paying its latest dividend soon. But what will come next?

Read more »