North America

Earnings Preview: Goldman Sachs Q1 2017 (GS)

By: Craig Bowles

Overview

Goldman Sachs (GS) is scheduled to report 1Q2017 earnings before the opening bell on Tuesday, April 18th.  The firm indicated it would provide a press release at approximately 7:30 a.m. ET and follow with a conference call at 9:30 a.m. webcast through Goldman Sachs Investor Relations. Being a member of the Dow Jones Industrial Average adds to Goldman’s potential impact on the broader market gauges, particularly the index futures, as well as the financial sector.

gsP

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Goldman Sachs typically provides a “clean” number but can include verbiage containing items. Analyst consensus is $5.31 (range $4.60 to $5.72). (Source: Yahoo! Finance) Consensus was $4.61 three months ago.
  • Revenues: Consensus expectations are for a 33.3% y/y increase to $8.45 bln (range $7.95 bln to $10.77 bln).
  • Goldman valuations show Price/Earnings of 13.7 vs a 5-year average of 12.9; Price/Book of 1.2 vs a 5-year average of 1.0; Price/Revenue of 3.2 vs a 5-year average of 2.4; Price/Cash Flow of 17.4 vs a 5-year average of 16.1. Dividend Yield of 1.2% compares to a 5-year average of 1.2%.
  • Analysts view Goldman with 12 Buy, 11 Hold, and 3 (1 two qtrs. ago) Sell rating. (Source: MarketBeat.com)
  • Insiders sold 438,652 shares over the last three months and 1,685,211 shares in the past year. (source: NASDAQ.com) Goldman buys back around $1.25 billion per quarter totaling 2016 $6.2 bln, 2015 $4.2 bln, 2014 $5.5 bln, 2013 $6.2 bln, and 2012 $4.6 bln.
  • Goldman quarterly results act as a key litmus test measuring the health of the U.S. financial services sector and can impact shares of other money center banks, including JP Morgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Bank of America (BAC) and Morgan Stanley (MS).
  • Goldman shares have a 1-day average price change on earnings of 1.56%. Options are pricing in an implied move of 2.68% off earnings.

Recent News

  • 04/13: CFRA upgraded Goldman Sachs to Buy from Hold following strong results in investment banking and trading by JP Morgan and a belief that GS will deliver comparable strength, according to a post on Barron’s.com.
  • 03/21: Goldman Sachs is looking to jump into the robo-advisor game, according to a post on Barron’s.com.
  • 02/21: While the XLF is up 45% in the past year, Ladenburg Thalmann notes that bigger banks’ earnings will benefit from rising rates more than smaller banks given that they have some $5 trillion in investible, liquid assets, according to a post on Barron’s.com.
  • 02/17: The country’s biggest banks would see an average jump in annual profits of 14% if Trump is able to push his plan through. The KBW Bank Index has risen 29% since the election, according to a post on Barron’s.com.
  • 02/03: Bank stocks have gained partially on President Trump’s plan roll back financial regulations such as Dodd-Frank and another executive action aimed at rolling back a controversial regulation scheduled to take effect in April that critics have said would upend the retirement-account advisory business, according to a post on Barron’s.com.
  • 02/01: Morgan Stanley remains Overweight the big banks while pointing out that large cap banks are trading relatively in-line with historical multiples, but that’s on current EPS estimates and there are several positive catalysts this year: stable-to-lighter touch on regulation, infrastructure spend, deficit-led growth, rate hikes and potential for lower taxes, according to a post on Barron’s.com.

Technical Review

Goldman’s stock has been one of the better money center bank stocks over the past year.  More recently, Goldman  is trading below the early 2017 low similar to Morgan Stanley and Wells Fargo. Point and figure charts show a stock that has already broken below a balance area and you have to go back to 2015 to find any support areas in the $180s.  (Chart courtesy of StockCharts.com)

gsC

Summary

Goldman and other bank stocks are supposed to benefit from higher interest rates, so sounds a bit new-age. Analysts show a couple of more bears the past six months but remain mostly bullish and neutral. Insider selling has been pretty steady for more than one year. The last four quarters have beaten analyst consensus by an average of $0.57 but the year-ago quarter was by $0.23. Estimize consensus for EPS of $5.34 on revenue of $8.45 bln compares to analyst consensus of $5.31 on revenue of $8.45 bln.

 

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