Goldman Sachs (NYSE:GS) reported second-quarter earnings in mid-July against the backdrop of a global pandemic, and the numbers were surprisingly strong. GS stock rallied to near Covid-19 highs as the investment banking giant reported a double-beat quarter that included its second-highest quarterly net revenues ever, operating efficiency improvement and a rise in pre-provision profits (net profits fell big year-over-year because the company boosted its credit loss provisions).

Overall, the numbers were actually really good.

They broadly underscore why GS stock is a buy here, and why — boosted by a recovery in economic activity in the second half of 2020 and a presently discounted valuation — shares can rally to $250.

Here’s a deeper look.

Strong Earnings From GS Stock

While Main Street may be struggling amid the Covid-19 pandemic, Goldman Sachs’ strong second-quarter earnings report confirmed that Wall Street is not struggling right now. At all.

Goldman Sachs isn’t a retail bank. It’s a capital markets bank. While retail banking has struggled over the past few months because consumers have lost their jobs and spending has fallen off a cliff, capital markets activity has actually burgeoned during that stretch.

Goldman’s Q2 numbers reflect that reality.

Investment banking net revenues rose 36% year-over-year in the quarter, paced by 122% growth in equity underwriting and 93% growth in debt underwriting. Fixed income revenues rose 149% year-over-year. Wealth management revenues rose 7% year-over-year.

All of this strong top-line growth fueled operating efficiency improvement versus a year ago and led to pre-provision profits rising year-over-year.

Overall, despite broad pandemic headwinds, Goldman Sachs had a pretty good second quarter.

An Economic Recovery Underway

A sustained economic recovery over the next few months will provide meaningful tailwinds for Goldman Sachs’ operations.

Yes, right now we are going in reverse in terms of the economic recovery. New York is essentially closing its borders. California, Texas, Florida and many other states are rolling back reopening measures.

Still, these business shutdowns and mobility restrictions are temporary. News on the vaccine front remains promising. A vaccine is coming. Soon. When it does arrive, many of these restrictions will become a thing of the past.

Plus, America is only doing a better job at balancing virus mitigation efforts with attempts to maintain social and economic normalcy. For example, while California has shut down indoor restaurant operations, many cities in the state are now turning streets and parking lots into outdoor seating for restaurants. At the same time, retail shops and salons are increasingly moving their operations outside too.

Mask wearing is also becoming more ubiquitous, and that should prove to be a leading indicator for decreasing Covid-19 spread and easing economic restrictions.

So throughout the back-half of 2020, I expect U.S. consumers, businesses and legislators alike to all get better at this balancing act. As they do, U.S. economic activity will perk up. So will capital markets activity. You’ll get more IPOs. More acquisitions. More deal-making in general.

As capital markets activity accelerates over the next few quarters, Goldman’s numbers will only get better. And GS stock will only go higher.

Goldman Sachs Stock to $250?

By my numbers, Goldman Sachs stock could surge towards $250 over the next roughly six months.

Goldman Sachs reported earnings per share of around $21 in 2019. Given the company’s lack of retail banking exposure and broad capital markets exposure, the outlook for Goldman to recapture those profits in 2021 (post-pandemic) is quite good. Current consensus estimates on Wall Street call for Goldman Sachs to actually do $22 in earnings per share in 2020.

Those estimates have been trending higher over the past month. I suspect they will continue to trend higher as Covid-19 vaccine progress remains favorable, U.S. economic activity perks up and the capital markets outlook for 2021 improves.

By the end of this year, I believe Wall Street’s consensus 2021 earnings per share estimate for Goldman Sachs will sit around $25.

GS stock normally trades at 10-times forward earnings. That combination implies a 2020 price target for GS stock of $250.

Bottom Line on GS Stock

Bank stocks are a buy here. They are cheap. And the U.S. economic outlook will only improve over the next few months as America gets better at the Covid-19 balancing act and as biotech giants continue to make favorable progress on a vaccine.

As goes the U.S. economic outlook, so go U.S. bank stocks.

GS stock will be no exception to this trend.

Expect meaningful out-performance from GS stock over the next few months.