North America

Earnings Preview: Goldman Sachs Q2 2017 (GS)

By: Craig Bowles

Overview

Goldman Sachs (GS) is scheduled to report 2Q2017 earnings before the opening bell on Tuesday, July 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.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Goldman Sachs typically provides a “clean” number but can include verbiage containing items. Analyst consensus is $3.42 (range $3.14 to $3.76). (Source: Yahoo! Finance) Consensus was $3.97 three months ago.
  • Revenues: Consensus expectations are for a 4.7% y/y decrease to $7.56 bln (range $7.31 bln to $7.97 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 3.0 vs a 5-year average of 2.4; Price/Cash Flow of 20.5 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, 12 Hold, and 1 Sell rating. (Source: MarketBeat.com)
  • Insiders made no trades over the last three months and sold 1,682,547 shares in the past year. (source: NASDAQ.com) Goldman approved repurchase of 50 million shares in April 2017 which is $11.5 bln worth at today’s prices. The company has previously bought 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 1.91%. Options are pricing in an implied move of 3.18% off earnings.

Recent News

  • 06/28: Following positive results from the annual stress tests, the Fed approved capital return plans of all 34 banks. GS expects to increase their dividend and buybacks, according to a post on CNBC.com.
  • 06/20: Macquarie has an Outperform rating on Goldman Sachs on the theme of improved M&A and should benefit from the Amazon purchase of Whole Foods. Goldman advised Amazon and is leading its debt deal, according to a post on Barron’s.com.
  • 06/19: Despite a flattening yield curve, big banks can benefit from higher payouts, relatively low valuations, and better earnings driven by higher rates. KBW warns the “bear flattener” of the yield curve pressures income, according to a post on Barron’s.com.
  • 06/17: Large lenders are poised to increase dividends by double digits, according to a post on Barron’s.com.
  • 06/8: Goldman Sachs launched the first in a Series of Bond ETFs, according to a post on Barron’s.com.
  • 06/06: Morgan Stanley sees financial regulatory reform progress picking up this summer, according to a post on Barron’s.com.

Technical Review

After being among the leaders of the Trump rally, Goldman’s stock has underperformed the other big banks since the $259.29 high in Q1.  Having retested the upward sloping 200-day moving average a couple of times, it’s a beautiful chart going into earnings. Above $220 is the right side of the current balance area.  (Chart courtesy of StockCharts.com)

Summary

Goldman and other bank stocks are supposed to benefit from higher interest rates, so sounds a bit new-age. Analysts are relatively neutral. Insider selling appears to have dried up. The last four quarters have beaten and missed analyst consensus by an average of $0.55. Estimize consensus for EPS of $3.73 on revenue of $7.848 bln compares to analyst consensus of $3.42 on revenue of $7.56 bln.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.