Back to top

Image: Bigstock

Goldman (GS) Up 22.6% Since Last Earnings Report: Can It Continue?

Read MoreHide Full Article

It has been about a month since the last earnings report for Goldman Sachs (GS - Free Report) . Shares have added about 22.6% 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 catalysts.

Goldman Q3 Earnings Top Estimates, IB Revenues Slump Y/Y

Goldman’s third-quarter 2022 earnings per share of $8.25 have surpassed the Zacks Consensus Estimate of $7.47. However, the bottom line fell 44.7% from the year-earlier quarter.

While strength in the FICC and consumer banking businesses acted as a tailwind, the bank’s results were hurt by lower IB revenues.

Goldman also introduced a realignment of its businesses to further capitalize on its operating model. It has put its businesses into three operating segments — Asset & Wealth Management, Global Banking & Markets, and Platform Solutions, effective from the start of fourth-quarter 2022.

Net earnings of $3.07 billion decreased 43% from the prior-year quarter.

Revenues Dip, Expenses Rise

Net revenues of $11.98 billion fell 12% from the year-ago quarter. Nonetheless, the top line beat the Zacks Consensus Estimate of $11.26 billion.

Total operating expenses increased 17% year over year to $7.7 billion.

Provision for credit losses was $515 million, higher than $175 million in the prior-year quarter.

Segmental Performance Mixed

The IB division generated revenues of $1.58 billion in the reported quarter, down 57% year over year. Results reflect a significant decline in net revenues in Underwriting, Financial advisory and Corporate lending.

The Global Markets division recorded revenues of $6.20 billion, up 11% year over year. The uptick indicated a rise in net revenues in FICC (up 41%), partially offset by lower equities revenues (down 14%).

The Consumer and Wealth Management division’s revenues were a record $2.38 billion, 18% higher than the year-ago figure. While net revenues from Wealth management were essentially unchanged from the third quarter of 2021, consumer banking net revenues nearly doubled from the comparable period.

The Asset Management division recorded revenues of $1.82 million, indicating a 20% year-over-year decline. The downside resulted from notably lower net revenues in Equity investments and Lending and debt investments, partially offset by an increase in net revenues from Management and other fees.

Firmwide assets under supervision were $2.42 trillion, down 2.7% sequentially.

Capital Position Mixed, Profitability Declines

As of Sep 30, 2022, the standardized Common Equity Tier 1 capital ratio was 14.3%. The figure was up from the prior-year quarter’s 14.1%. The company’s supplementary leverage ratio was 5.6% as of Sep 30, 2022, unchanged from the prior-year quarter.

Also, return on average common shareholders’ equity (on an annualized basis) decreased 11.5 basis points year over year to 11% in the reported quarter.

Capital Deployment Update

In the quarter under review, Goldman returned $1.89 billion of capital to common shareholders. This included $1 billion in share repurchases and common stock dividends of $893 million.

Medium-Term and Long-Term Financial Targets

At a conference held in February 2022, Goldman’s management provided an update on its medium-term (three-year period) and long-term financial targets. Those are as follows:

The company increased medium-term firmwide ROE target to 14-16% from the previous 13% and return on tangible common equity to 15-17% from more than 14% stated earlier.

Also, the firm’s efficiency ratio target of 60% has been reiterated. The company already realized $1 billion of expense efficiencies from 2019 to 2021 of the target $1.3 billion.

In the Asset Management segment, organic traditional long-term net inflows are projected to reach $350 million by 2024, up $100 billion from the previous target. Also, $225 billion worth of gross alternative fundraising is anticipated by 2024 from the prior target of $150 billion.

Goldman announced new targets of more than $10 billion in firmwide management and other fees. Of this, more than $2 billion in alternatives management fees are expected for 2024.

In the IB segment, management expects transaction banking revenues to reach $750 million, down from the prior mentioned $1 billion. Deposits of more than $100 billion by 2024 are expected.

Revenues in the Consumer and Wealth Management segment are projected to reach $4 billion by 2024. This will likely be supported by more than $150 billion in deposits and loans/cards balance exceeding $30 billion by the same year.

Goldman aims to reduce its stress capital buffer toward 5% from the current capital requirement of 6.4%. Also, the company noted that the global systematically important banking buffer (G-SIB) surcharge will increase 50 basis points (bps) to 3%, effective 2023, and another 50 bps to 3.5%, effective 2024, from the current G-SIB 2.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -12.6% due to these changes.

VGM Scores

At this time, Goldman has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Goldman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Goldman is part of the Zacks Financial - Investment Bank industry. Over the past month, Morgan Stanley (MS - Free Report) , a stock from the same industry, has gained 15.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Morgan Stanley reported revenues of $12.99 billion in the last reported quarter, representing a year-over-year change of -12%. EPS of $1.53 for the same period compares with $2.04 a year ago.

Morgan Stanley is expected to post earnings of $1.44 per share for the current quarter, representing a year-over-year change of -30.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.7%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Morgan Stanley. Also, the stock has a VGM Score of F.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


The Goldman Sachs Group, Inc. (GS) - free report >>

Morgan Stanley (MS) - free report >>

Published in