Goldman Sachs Group Inc.

Goldman Sachs Group Inc. (GS), the global financial services firm, recently reported a much better than expected second quarter that surprised by 40.06%. While everyone is talking about the blow-out quarter, not many people realize that Goldman Sachs is a value stock, trading at just 10x forward earnings.

Company Description

Goldman Sachs Group is a financial services firm offering investment banking, securities and investment management services to corporations, governments and high-net-worth individuals.

Goldman Saw Record Quarterly Revenue

On July 14, Goldman Sachs reported second-quarter 2009 results which easily surprised on Wall Street estimates by 40.06%, or $1.41 per share. Earnings per share were $4.93 compared to analysts' estimates of $3.52.

The record revenue was a result of a surge in the Trading and Principal Investments segment which saw revenue 93% higher than the second quarter of 2008 and 51% higher than the first quarter of the year. Revenue in FICC and the Equities segment were also higher than a year ago with Equities climbing 28% over the second quarter of 2008.

Investment banking appears to be on the road to recovery with quarter after quarter revenue rebounding by 75% but it still lagged the second quarter of 2008 by 15%. Financial Advisory segment, which handles mergers and acquisitions, saw revenue fall 54% compared to a year ago as fewer deals are being completed.

As the stock market fell in 2008 and 2009, the Asset Management segment was pressured, falling 28% compared to a year ago.

During the second quarter of 2009, assets under management increased $48 billion due mainly to market appreciation as the stock and fixed income markets rebounded. However, there was also new money coming in, with $6 billion of the $48 billion coming from net inflows.

The number of employees fell 1% during the quarter as the company put aside $6.65 billion in compensation and benefits expenses which included salaries and estimated year-end discretionary bonuses as well as severance costs and payroll taxes.

Consensus Estimates Move Sharply Higher

Given the much-better-than expected second quarter earnings report, covering analysts scrambled to raise estimates on the third quarter and the full year.

Third quarter consensus estimates leaped 11.72% in the last week with 12 out of 18 covering analysts raising to an average of $3.24 from $2.90 per share.

Full year consensus estimates surged 17.37% to $15.47 from $13.18 in the last 7 days with 14 out of 19 covering analysts raising.

Analysts now expect year over year earnings growth of 246.01%, which reflects the turnaround in the fortunes of the financial sector since 2008.

Value Fundamentals

Goldman Sachs is a Zacks #1 Rank (strong buy) stock. It has a price-to-book of 1.54. The company has a stellar 5-year average return on equity (ROE) of 22.58%.

Read the full analyst report on GS