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Analyst Blog

On Mar 8, 2013, we reiterated our long-term recommendation on The Goldman Sachs Group, Inc. (GS - Analyst Report) at Neutral based on its well-managed global franchise, strong capital base and recent investments. However, regulatory issues coupled with fundamental pressure on the banking sector are expected to dent its financials in the upcoming quarters.

Why Neutral?

Goldman reported its fourth-quarter 2012 earnings per share of $5.60, significantly surpassing the Zacks Consensus Estimate of $3.47. Moreover, the reported earnings outpaced the prior-year quarter earnings of $1.84 and prior-quarter earnings of $2.85 per share.

Amid challenging global markets and the European debt crisis, the results were driven by Goldman’s record revenues with an elevation in client activity. Further, sturdy capital ratios depict Goldman’s financial strength.

Yet, escalated operating expenses acted as a headwind for the fourth quarter. Operating expenses ascended 3% to $4.9 billion compared with the prior-year quarter. Additionally, results included net provisions of $260 million for regulatory proceedings.

Though the U.S. economy posted stable to improving economic data during 2012, including favorable developments in unemployment and housing, concerns about the outlook for the global economy and continued political uncertainty persist.

Following fourth-quarter 2012 results, the Zacks Consensus Estimate for 2013 increased 2.6% to $13.27 per share as 11 out of 21 estimates were revised higher over the last 60 days. For 2014, 8 of the 17 estimates moved north over the same time frame, lifting the Zacks Consensus Estimate by 3.7% to $14.89 per share. With the upswing in the Zacks Consensus Estimates, Goldman retains a Zacks Rank #2 (Buy).

Other Major Banks to Consider

Among peers, Evercore Partners Inc. (EVR - Snapshot Report), Knight Capital Group Inc. (KCG - Snapshot Report) and Piper Jaffray Companies (PJC - Snapshot Report) hold a Zacks Rank #1 (Strong Buy).

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