Back to top

Image: Bigstock

Will Subdued Trading Activity Ail Goldman's (GS) Q4 Earnings?

Read MoreHide Full Article

The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release fourth-quarter 2021 earnings on Jan 18, before market open. The company is set for year-over-year growth in revenues and earnings.

In the previous quarter, Goldman’s earnings per share of $14.93 significantly surpassed the Zacks Consensus Estimate of $9.78. Impressive financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisition transactions, acted as tailwinds.

Over the trailing four quarters, the company’s earnings have surpassed the consensus estimate on all four occasions, the surprise being 66.8%, on average.

The Goldman Sachs Group, Inc. Price and EPS Surprise

 

The Goldman Sachs Group, Inc. Price and EPS Surprise

The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote

High volatility in the equity markets in November is expected to have spiked trading volumes in equities, providing decent support to trading revenues. This is likely to have been offset by the continued normalization of fixed-income trading activities.

Amid this backdrop, the Zacks Consensus Estimate of $1.96 billion for net revenues in Fixed Income, Currency and Commodities Client Execution suggests a 4.2% fall from the prior-year quarter’s reported number. The consensus estimate of $2.47 billion for global market revenues from equities indicates a year-over-year rise of 3.6%.

Other Factors at Play

Impressive Investment Banking (IB) Fees: Similar to the past several quarters, deal-making continued at a fast pace in fourth-quarter 2021, with notable advancement in completed deal volume across the globe. This was primarily driven by robust macroeconomic expectations, companies deploying their cash reserves, appetite for improving scale and market share, and increasing confidence in the economic recovery. Low interest rates have offered cheap debt-financing opportunities, further fueling the shopping spree in the United States.

In the third quarter, the company retained its #1 position in worldwide announced and completed mergers and acquisitions. Amid the favorable business trends, Goldman’s solid position in announced and completed mergers and acquisitions globally is likely to have enabled it to witness impressive IB fee growth. The consensus estimate for IB fees of $3.2 billion indicates a 22.7% year-over-year rise.

Net Interest Income (NII) Growth: In the fourth quarter, which is typically a seasonally-strong quarter for loan growth, lending activity witnessed decent acceleration sequentially. Per the Fed’s latest data, commercial and industrial loans, real estate loans, and consumer loan portfolios remained strong in October and November. In the fourth quarter, the yield curve steepened, likely propelling NII. Additionally, stimulus-driven liquidity injected in the banking system remained high, with expanding deposit balances. This, too, is expected to have aided NII.

The consensus estimate for Goldman’s NII of $1.4 billion suggests a marginal increase from the prior-year quarter’s reported number.

Higher Inflows in Asset Management Business: Goldman’s efforts to focus on more durable revenues like asset management revenues might have aided the asset management business put up a decent performance in the reported quarter. Higher market gains are likely to have driven inflows from the asset management business.

Here is what our quantitative model predicts:

Our proven model does not show that Goldman has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat this time around.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Goldman is 0.00%.

Zacks Rank: It currently carries a Zacks Rank #2 (Buy).

Prior to the fourth-quarter earnings release, Goldman’s activities in the October-December period were inadequate to gain adequate analyst confidence. Notably, the Zacks Consensus Estimate for fourth-quarter earnings has been revised marginally downward to $12.10 over the past week. It suggests a marginal year-over-year increase.

Also, the consensus estimate of $12.09 billion for quarterly revenues indicates 3% growth from the prior-year quarter’s reported number.

Stocks That Warrant a Look

Fifth Third Bancorp (FITB - Free Report) , Citizens Financial Group, Inc. (CFG - Free Report) and Huntington Bancshares Incorporated (HBAN - Free Report) are a few stocks that you might want to consider as these have the right combination of elements to post earnings beat in their upcoming releases, per our model.

The Earnings ESP for Fifth Third is +0.46% and it carries a Zacks Rank #3 at present. FITB is slated to report the fourth-quarter 2021 results on Jan 20.

The Zacks Consensus Estimate for Fifth Third’s fourth-quarter earnings has been unchanged over the past 30 days.

Citizens Financial is scheduled to release the fourth-quarter results on Jan 19. CFG currently has a Zacks Rank #3 and an Earnings ESP of +0.12%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Citizens Financial’s fourth-quarter earnings has been unchanged over the past 30 days.

Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, which carries a Zacks Rank #3 at present, has an Earnings ESP of +2.80%.

The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has been revised 2.1% downward over the past week.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.