North America

Earnings Preview: Goldman Sachs Q3 2017 (GS)

By: Craig Bowles

Overview

Goldman Sachs (GS) is scheduled to report 2Q2017 earnings before the opening bell on Tuesday, October 17th.  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 $4.17 (range $3.60 to $4.50). (Source: Yahoo! Finance) Consensus was $4.37 three months ago.
  • Revenues: Consensus expectations are for a 7.7% y/y decrease to $7.54 bln (range $7.17 bln to $7.95 bln).
  • Goldman valuations show Price/Earnings of 12.8 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. Dividend Yield of 1.1% compares to a 5-year average of 1.2%.
  • Analysts view Goldman with 10 (12 last qtr) Buy, 15 Hold, and 1 Sell rating. (Source: MarketBeat.com)
  • Insiders sold 134,383 shares over the last three months and 1,799,627 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 2.32%. Options are pricing in an implied move of 2.49% off earnings.

Recent News

  • 10/09: Credit Suisse downgraded Goldman to Neutral from Outperform. Banks will face some issues, including weaker loan growth and trading, according to a post on Barron’s.com.
  • 10/02: Goldman is considering building a bitcoin trading operation, according to a post on Barron’s.com.
  • 09/12: Goldman pledged to create an addition $5 billion in revenue over the next three years, by fixing its fixed-income trading business, and boosting its lending, according to a post on Barron’s.com.
  • 09/08: Oppenheimer thinks bank stocks are back to trading as bond proxies, according to a post on Barron’s.com.
  • 09/08: Goldman Sachs commodities trading co-head, Greg Agran, is leaving after 26 years, according to a post on Reuters.com.
  • 08/30: Goldman Sachs received approval on Sunday to trade equities in Saudi Arabia, according to a post on Reuters.com.
  • 07/22: KBW estimated that the big banks, including Goldman Sachs Group could get a cumulative earnings boost averaging 30% if a series of regulatory-relief actions take place—among them, the capital rule on risk-free deposits, a relaxation of the Volcker rule, and a reduction in the excess capital that large U.S. banks hold relative to overseas rivals, according to a post on Barron’s.com.

Technical Review

Goldman’s stock has underperformed the other big banks since the $259.29 high in Q1 and is one of the few banks below the Q1 level.  The stock has rallied going into earnings after having tested below the 200-day moving average. Above $220 is the right side of balance area support.  (Chart courtesy of StockCharts.com)

Summary

Goldman and other bank stocks are supposed to benefit from higher interest rates and leading indicators of inflation show mostly higher prices and decreased slack. Analysts are less bullish. Insider selling was light. The last four quarters have beaten and missed analyst consensus by an average of $0.51. Estimize consensus for EPS of $4.27 on revenue of $7.531 bln compares to analyst consensus of $4.17 on revenue of $7.54 bln.

 

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