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Goldman (GS) Up 10.6% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Goldman Sachs (GS - Free Report) . Shares have added about 10.6% 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 the most recent earnings report in order to get a better handle on the important drivers.
Goldman’s second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. Also, the bottom line is significantly higher than the year-earlier quarter figure.
While the bank’s results were hurt by lower FICC revenues; strength in equity underwriting business, wealth management and consumer banking business acted as tailwinds.
Impressive financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisition transactions, were positives. Moreover, provision benefits supported the results.
Net earnings of $5.49 billion increased substantially from $373 million in the prior-year quarter.
Revenues Jump, Expenses Fall
Net revenues of $15.4 billion rose 16% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.7 billion.
Total operating expenses declined 17% year over year to $8.64 billion. Lower non-compensation expenses, offset by higher compensation and benefits, and transaction-based and technology expenses chiefly resulted in the decline.
Notably, net provisions for litigation and regulatory proceedings of $226 million were recorded compared with the prior-year quarter’s $2.96 billion.
Provision for credit losses was a benefit of $92 million against provisions of $1.59 billion in the prior-year quarter. Reserve reductions on wholesale and consumer loans were partially offset by portfolio growth.
Segment Performance Improve
After record net revenues in the first quarter, the Investment Banking division generated its second-highest quarterly revenues of $3.61 billion in the reported quarter, up 36% year over year. Results reflected higher financial advisory revenues (up 83%), marking an increase in completed merger and acquisition deals.
Corporate lending revenues of $159 million compared favorably with negative revenues of $76 million in the prior-year quarter. Increased financial advisory revenues (up 7%) were on the upside, owing to the rise in equity underwriting.
The Global Markets division recorded revenues of $4.9 billion, down 32% year over year. The downtick indicated a decline in net revenues in FICC (down 45%) due to declining revenues from both FICC intermediation and FICC financing. Also, a decline in equities revenues (down 12%) was recorded due to lower equities intermediation, offset by higher financing.
The Consumer and Wealth Management division’s revenues of $1.7 billion were 28% higher year over year. Increased revenues from wealth management (up 25%) and consumer banking (up 41%) resulted in the upsurge.
The Asset Management division recorded revenues of $5.1 billion, indicating 144% year-over-year growth. The upside resulted from higher net revenues in lending and debt investments, equity investments, management, and other fees as well as incentive fees.
Assets under supervision were $2.30 billion, up 12.1% year over year.
Strong Capital Position
As of Jun 30, 2021, Common Equity Tier 1 ratio was 14.4% under the Basel III Standardized Approach, highlighting valid transitional provisions. The ratio was up from the prior-year quarter’s 13.3%.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 5.5% as of Jun 30, 2021, down from the prior-quarter figure of 6.6%.
Return on average common shareholders’ equity, on an annualized basis, was 23.7% in the reported quarter.
Capital Deployment Update
In the quarter under review, Goldman returned $1.44 billion of capital to common shareholders. This included $1 billion of share repurchases and $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 of 21%.
Medium-Term and Long-Term Financial Targets
ROE 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 to be 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 estimates revision. The consensus estimate has shifted 16.85% due to these changes.
VGM Scores
Currently, Goldman has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Goldman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Goldman (GS) Up 10.6% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Goldman Sachs (GS - Free Report) . Shares have added about 10.6% 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 the most recent earnings report in order to get a better handle on the important drivers.
Goldman Q2 Earnings Beat Estimates, Revenues Rise Y/Y
Goldman’s second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. Also, the bottom line is significantly higher than the year-earlier quarter figure.
While the bank’s results were hurt by lower FICC revenues; strength in equity underwriting business, wealth management and consumer banking business acted as tailwinds.
Impressive financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisition transactions, were positives. Moreover, provision benefits supported the results.
Net earnings of $5.49 billion increased substantially from $373 million in the prior-year quarter.
Revenues Jump, Expenses Fall
Net revenues of $15.4 billion rose 16% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.7 billion.
Total operating expenses declined 17% year over year to $8.64 billion. Lower non-compensation expenses, offset by higher compensation and benefits, and transaction-based and technology expenses chiefly resulted in the decline.
Notably, net provisions for litigation and regulatory proceedings of $226 million were recorded compared with the prior-year quarter’s $2.96 billion.
Provision for credit losses was a benefit of $92 million against provisions of $1.59 billion in the prior-year quarter. Reserve reductions on wholesale and consumer loans were partially offset by portfolio growth.
Segment Performance Improve
After record net revenues in the first quarter, the Investment Banking division generated its second-highest quarterly revenues of $3.61 billion in the reported quarter, up 36% year over year. Results reflected higher financial advisory revenues (up 83%), marking an increase in completed merger and acquisition deals.
Corporate lending revenues of $159 million compared favorably with negative revenues of $76 million in the prior-year quarter. Increased financial advisory revenues (up 7%) were on the upside, owing to the rise in equity underwriting.
The Global Markets division recorded revenues of $4.9 billion, down 32% year over year. The downtick indicated a decline in net revenues in FICC (down 45%) due to declining revenues from both FICC intermediation and FICC financing. Also, a decline in equities revenues (down 12%) was recorded due to lower equities intermediation, offset by higher financing.
The Consumer and Wealth Management division’s revenues of $1.7 billion were 28% higher year over year. Increased revenues from wealth management (up 25%) and consumer banking (up 41%) resulted in the upsurge.
The Asset Management division recorded revenues of $5.1 billion, indicating 144% year-over-year growth. The upside resulted from higher net revenues in lending and debt investments, equity investments, management, and other fees as well as incentive fees.
Assets under supervision were $2.30 billion, up 12.1% year over year.
Strong Capital Position
As of Jun 30, 2021, Common Equity Tier 1 ratio was 14.4% under the Basel III Standardized Approach, highlighting valid transitional provisions. The ratio was up from the prior-year quarter’s 13.3%.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 5.5% as of Jun 30, 2021, down from the prior-quarter figure of 6.6%.
Return on average common shareholders’ equity, on an annualized basis, was 23.7% in the reported quarter.
Capital Deployment Update
In the quarter under review, Goldman returned $1.44 billion of capital to common shareholders. This included $1 billion of share repurchases and $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 of 21%.
Medium-Term and Long-Term Financial Targets
ROE 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 to be 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 estimates revision. The consensus estimate has shifted 16.85% due to these changes.
VGM Scores
Currently, Goldman has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Goldman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.