A month has gone by since the last earnings report for Goldman Sachs (GS Quick QuoteGS - Free Report) . Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Goldman due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Goldman Q4 Earnings Beat Estimates on Revenue Strength

Aided by revenue strength, Goldman reported fourth-quarter 2020 earnings per share of $12.08, significantly surpassing the Zacks Consensus Estimate of $6.99. Also, the bottom-line figure compares favorably with the earnings of $4.69 per share recorded in the year-earlier quarter.

The bank’s results were aided by higher FICC revenues during the reported quarter. Also, the underwriting business displayed strength, supported by equity underwriting. In addition, wealth management and consumer banking business witnessed an upswing, reflecting rise in credit card loans.

Additionally, elevated financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisitions transactions, acted as a tailwind. Moreover, fall in provisions and expenses remain favorable factors.

The investment bank, nevertheless, disappointed with the corporate lending and debt underwriting revenues.

For full-year 2020, net income per share of $24.74 came in higher than the year-ago earnings of $21.03. This reflects the second highest annual earnings per share reported by Goldman. Earnings also outpaced the Zacks Consensus Estimate of $20.53. Results included the impact of $9.51 related to net provisions for litigation and regulatory proceedings during the year.

Revenues Climb, Expenses Down

For full-year 2020, the company reported revenues of $44.6 billion, up 22% year over year. Further, revenues beat the Zacks Consensus Estimate of $42.5 billion.

Goldman’s net revenues were up 18% year over year to $11.74 billion in the October-December quarter. The revenue figure also beat the Zacks Consensus Estimate of $9.65 billion.

Quarterly revenues, as per business segments, are as follows:

The Investment Banking division generated revenues of $2.61 billion, up 27% year on year. Results reflect higher underwriting revenues (up 68%), supported by improved equity underwriting, partly offset by lower debt underwriting revenues. Yet, corporate lending reported negative revenues. Further, increased financial advisory revenues (up 28%) were on the upside owing to rise in industry-wide completed merger and acquisition transactions.

The Global Markets division recorded revenues of $4.27 billion, up 23% year over year. This uptick indicates record net revenues in Fixed Income, Currency and Commodities Client Execution (up 6%), fueled by solid revenues from credit products, currencies and commodities, partly offset by lower revenues in interest rate products and mortgages. However, FICC financing was on the downside.

Furthermore, higher equities revenues (up 40%) were recorded, aided by elevated equities intermediation.

The Consumer and Wealth Management division’s revenues of $1.65 billion came in 17% higher year over year during the December-end quarter. Increased revenues from wealth management (up 11%) and consumer banking (up 52%) resulted in this upsurge.

The Asset Management division recorded revenues of $3.21 billion, up 7% year on year. This upside mainly resulted from higher net revenues in lending and debt investments, along with elevated incentive and management and other fees.

Assets under supervision were $2.15 billion, up 15.6% year over year.

Total operating expenses dropped 19% year over year to $5.91 billion. Fall in compensation and benefits, travel and entertainment, and occupancy associated costs, partly negated by higher charitable contributions, transaction-based and technology expenses chiefly resulted in this decline.

Notably, net provisions for litigation and regulatory proceedings of $24 million were recorded compared with the prior-year quarter’s $1.09 billion.

Provision for credit losses was $293 million during the fourth quarter, down 13% from the prior-year quarter figure of $336 million due to reduced reserves on wholesale loans as the broader economic environment stabilized post COVID-19 pandemic impact earlier in 2020, partially negated by elevated provisions from growth in credit card loans.

Strong Capital Position

Goldman displayed a robust capital position in the reported quarter. As of Dec 31, 2020, the company’s Common Equity Tier 1 ratio was 14.7% under the Basel III Advanced Approach, highlighting valid transitional provisions. The figure was up from the prior-year quarter’s 13.3%.

The company’s supplementary leverage ratio, on a fully phased-in basis, was 7% at the end of the October-December quarter, up from the prior-year quarter figure of 6.2%.

Return on average common shareholders’ equity, on an annualized basis, was 21.1% in the quarter and 11.1% for the year 2020.

Capital Deployment Update

During 2020, Goldman repurchased 8.2 million shares of its common stock at an average price per share of $236.35 and a total cost of $1.93 billion and paid $1.8 billion of common stock dividends. Remarkably, share repurchases were made in first quarter of 2020.

The fourth-quarter 2020 includes around $448 million of common stock dividends.

Outlook

Management expects the 2021 pre-tax loss for consumer business, excluding the impact of reserves is likely going to be higher, driven by lower value on deposits, tighter credit standards, and additionally the investment in new General Motors credit card. Beyond 2021, Goldman will continue to invest where needed, and opportunities to build additional functionality with the digital bank, as well as to pursue further growth in partnership channel.

For the next few years, Goldman expects tax rate to be 21%.

Medium-Term and Long-Term Financial Targets

Return on Equity is expected to be greater than 13%, while return on tangible equity to be more than 14%. Efficiency ratio is expected to be around 60%. CET1 ratio is projected in the range of 13-13.5%.

Funding optimization is expected to be $1 billion. Expense efficiency savings estimated to be $1.3 billion (achieved half in 2020). Deposit growth expected to be $100 billion (reached $70 billion in 2020).

Over the long term, in Investment banking, management expects transaction banking revenues worth $1 billion and deposits worth $50 billion in more than five years horizon. Revenue generation from expanded client footprint is anticipated to be in the range of $500 million to $2 billion.

In Global Markets, $700 million expense efficiencies and $2 billion capital optimization is projected.

In Asset Management, $250 billion worth net traditional inflows (including both equity and fixed-income) and $100 billion worth net alternative inflows is anticipated. Further, capital reduction of $4 billion is expected.

In Consumer and Wealth Management, overall expansion is anticipated with the aim of building leading digital consumer bank.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.29% due to these changes.

VGM Scores

Currently, Goldman has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Goldman has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.