North America

Earnings Preview: Goldman Sachs Q4 2016 (GS)

By: Craig Bowles

Overview

Goldman Sachs (GS) is scheduled to report 4Q2016 earnings before the opening bell on Wednesday, January 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.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Goldman Sachs typically provides a “clean” number but can include verbiage containing items. Analyst consensus is $4.84 (range $4.11 to $5.65). (Source: Yahoo! Finance) Consensus was $4.20 three months ago.
  • Revenues: Consensus expectations are for an 6.3% y/y increase to $7.73 bln.
  • Goldman valuations show Price/Earnings of 19.3 vs a 5-year average of 12.9; Price/Book of 1.3 vs a 5-year average of 1.0; Price/Revenue of 3.6 vs a 5-year average of 2.4; Price/Cash Flow of 12.5 vs a 5-year average of 16.1. Dividend Yield of 1.1% compares to a 5-year average of 1.3%.
  • Analysts view Goldman with 10 Buy, 12 Hold, and 2 (1 last qtr) Sell rating. (Source: MarketBeat.com)
  • Insiders sold 1,226,592 shares over the last three months and 1,509,939 shares in the past year. No purchases in the past twelve months. (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 1.58%. Options are pricing in an implied move of 3.18% off earnings.

Recent News

  • 01/10: Citigroup downgraded Goldman to Sell from Neutral on valuation, according to a post on Marketwatch.com.
  • 01/06: Macquarie sees more upside for Goldman Sachs but the fourth quarter could be sluggish for the brokers due to low ECM volumes and thinner margins in equities, as the recent rally was driven more by ETFs than stock specific trades. Otherwise, Goldman has one of the largest earnings betas to improved economic growth through investment banking, trading and I&L. Although we may experience a lull in M&A announcements until there is more visibility on corporate tax reform, the IPO pipeline appears to be building. In addition to being above the street in 2018, we expect Goldman’s ROTCE to exceed 12.5%, with lower corporate taxes, driving multiple expansion, according to a post on Barron’s.com.
  • 12/21: Moody’s believes the Fed’s new TLAC rule won’t affect Goldman Sachs as they already meet the capital requirements to buffer against any potential future losses in a crisis, according to a post on Barron’s.com.
  • 11/30: Goldman remains one of the cheapest of the big Wall Street bank stocks, fetching a price-to-earnings multiple of 10.5 times 2018 earnings. Rising interest rates, rolled-back regulation and lower tax rates should help Goldman’s stock stay hot, according to a post on Barron’s.com.

Technical Review

Goldman’s stock had been among the weaker money center banks the last five years but that changed with the Trump election.  Since the election, Goldman has been outperformed most of the other major banks. Point and figure technicians met a bullish objective of $203.  (Chart courtesy of StockCharts.com)

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Summary

Goldman’s stock moved up 33% since the election but analysts remain mostly bullish and neutral. There have been no insider purchases of shares in more than one year. Goldman is among the last of the big banks to report. The last three quarters have seen earnings beat analyst consensus by an average of $0.67 but the year-ago quarter missed by $2.27. Estimize consensus for EPS of $4.69 on revenue of $7.466 bln compares to analyst consensus of $4.84 on revenue of $7.73 bln.

 

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