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Muted Trading, GreenSky Sale to Ail Goldman's (GS) Q3 Earnings
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The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release third-quarter 2023 earnings on Oct 17, before market open. The company is likely to have witnessed a year-over-year decline in quarterly earnings and revenues.
In the last reported quarter, Goldman’s earnings missed the Zacks Consensus Estimate. The company’s results were adversely impacted by a slump in the investment banking (IB) business. Yet, strength in the consumer banking business acted as a tailwind.
Over the trailing four quarters, the company’s earnings surpassed the consensus estimate on two of the four occasions and missed twice, the negative surprise being 5.89%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
In October 2023, Goldman announced an agreement to sell the GreenSky platform and related loan assets to a consortium of institutional investors led by Sixth Street. The transaction is expected to decrease third-quarter earnings per share by 19 cents. This indicates an increase in costs related to the write-down of intangibles, a decline in net revenues related to marks on the loan portfolio and an increase in taxes, offset by a loan reserve release reflected in provision for credit losses.
Major Factors at Play
Market-Making Revenues: While the risk of a near-term recession has faded, concerns like the economic slowdown, the central bank’s hawkish monetary policy and other geopolitical issues have been creating headwinds, which led to ambiguity among investors in the third quarter. Due to these factors, market volatility and client activity were subdued in the quarter.
Moreover, since the third quarter is a seasonally weak one for capital markets, GS is expected to have witnessed a muted trading performance. Tougher comps from the prior year are expected to have weighed on the company’s year-over-year performance in third-quarter 2023.
We estimate Fixed Income, Currency and Commodities revenues of $3.11 billion and $2.6 billion in equity revenues, indicating respective declines of 14% and 4.6%.
IB Fees: Global deal-making witnessed a slight rebound in the third quarter but M&A activities remained subdued on a year-over-year basis. Headwinds like geopolitical tensions, government shutdown, inflation, rising interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Thus, deal volume and total value numbers were weak in the third quarter. Overall growth in advisory fees is not expected to have been that impressive in the quarter. Therefore, Goldman’s advisory fees are expected to have been hurt in the third quarter. Nonetheless, GS’ solid position in worldwide announced and completed M&As is likely to have provided some leverage.
The Zacks Consensus Estimate for third-quarter 2023 IB fees of $1.51 billion indicates a 1.7% decline from the prior-year quarter’s actual. Our estimate for IB fees is pinned at $1.57 billion.
Net Interest Income (NII): The demand for commercial and industrial loans remained muted in July and August, per the Fed’s latest data. Moreover, commercial real estate loans declined in July and August from the second-quarter end. Nonetheless, the demand for consumer loans was decent at the same time.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th time FOMC has hiked interest rates in a tightening process that began in March 2022. In September, the rate hike was paused. With this, interest rates reached a target of 5.25-5.5% in the third quarter, marking the highest level in around 22 years.
Despite the high interest rate environment, softer loan demand, inversion of the yield curve and higher deposit and wholesale funding costs are anticipated to have negatively impacted NII in the quarter to be reported.
Notably, the Zacks Consensus Estimate for total net interest income is pegged at $2.02 billion, indicating a marginal year-over-year decrease. Our estimate for the same is pinned at $1.84 billion.
Expenses: Goldman’s investments in technology are anticipated to have led to a rise in costs in the to-be-reported quarter. Also, an increase in transaction-based expenses due to higher client activity and inflationary pressure across most expense lines is expected to have affected earnings. Nonetheless, employee reductions will help it reduce payroll compensations. We estimate expenses to decline 3.9% year over year to $7.40 billion.
What Our Model Predicts
Our proven model does not show that Goldman has the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is -8.91%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for third-quarter earnings has been revised 5% lower to $5.61 per share over the past week. The consensus estimate suggests a 32% year-over-year fall.
Also, the consensus estimate of $11.08 billion for quarterly revenues indicates a 7.44% year-over-year fall.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post earnings beat this season.
The Earnings ESP for FCNCA is +3.95% and currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
PNC is scheduled to release third-quarter 2023 results on Oct 13. It currently has an Earnings ESP of +1.26% and a Zacks Rank #3.
The Zacks Consensus Estimate for PNC’s third-quarter earnings has moved marginally south over the past week.
Image: Bigstock
Muted Trading, GreenSky Sale to Ail Goldman's (GS) Q3 Earnings
The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release third-quarter 2023 earnings on Oct 17, before market open. The company is likely to have witnessed a year-over-year decline in quarterly earnings and revenues.
In the last reported quarter, Goldman’s earnings missed the Zacks Consensus Estimate. The company’s results were adversely impacted by a slump in the investment banking (IB) business. Yet, strength in the consumer banking business acted as a tailwind.
Over the trailing four quarters, the company’s earnings surpassed the consensus estimate on two of the four occasions and missed twice, the negative surprise being 5.89%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote
Key Developments to Affect Q3 Results
In October 2023, Goldman announced an agreement to sell the GreenSky platform and related loan assets to a consortium of institutional investors led by Sixth Street. The transaction is expected to decrease third-quarter earnings per share by 19 cents. This indicates an increase in costs related to the write-down of intangibles, a decline in net revenues related to marks on the loan portfolio and an increase in taxes, offset by a loan reserve release reflected in provision for credit losses.
Major Factors at Play
Market-Making Revenues: While the risk of a near-term recession has faded, concerns like the economic slowdown, the central bank’s hawkish monetary policy and other geopolitical issues have been creating headwinds, which led to ambiguity among investors in the third quarter. Due to these factors, market volatility and client activity were subdued in the quarter.
Moreover, since the third quarter is a seasonally weak one for capital markets, GS is expected to have witnessed a muted trading performance. Tougher comps from the prior year are expected to have weighed on the company’s year-over-year performance in third-quarter 2023.
We estimate Fixed Income, Currency and Commodities revenues of $3.11 billion and $2.6 billion in equity revenues, indicating respective declines of 14% and 4.6%.
IB Fees: Global deal-making witnessed a slight rebound in the third quarter but M&A activities remained subdued on a year-over-year basis. Headwinds like geopolitical tensions, government shutdown, inflation, rising interest rates and fears of a global economic slowdown continued to weigh on deal-making.
Thus, deal volume and total value numbers were weak in the third quarter. Overall growth in advisory fees is not expected to have been that impressive in the quarter. Therefore, Goldman’s advisory fees are expected to have been hurt in the third quarter. Nonetheless, GS’ solid position in worldwide announced and completed M&As is likely to have provided some leverage.
The Zacks Consensus Estimate for third-quarter 2023 IB fees of $1.51 billion indicates a 1.7% decline from the prior-year quarter’s actual. Our estimate for IB fees is pinned at $1.57 billion.
Net Interest Income (NII): The demand for commercial and industrial loans remained muted in July and August, per the Fed’s latest data. Moreover, commercial real estate loans declined in July and August from the second-quarter end. Nonetheless, the demand for consumer loans was decent at the same time.
The Federal Reserve raised the interest rates by another 25 basis points in the quarter under review. Thus, the policy rate reached 5-5.25% in July 2023, marking the 11th time FOMC has hiked interest rates in a tightening process that began in March 2022. In September, the rate hike was paused. With this, interest rates reached a target of 5.25-5.5% in the third quarter, marking the highest level in around 22 years.
Despite the high interest rate environment, softer loan demand, inversion of the yield curve and higher deposit and wholesale funding costs are anticipated to have negatively impacted NII in the quarter to be reported.
Notably, the Zacks Consensus Estimate for total net interest income is pegged at $2.02 billion, indicating a marginal year-over-year decrease. Our estimate for the same is pinned at $1.84 billion.
Expenses: Goldman’s investments in technology are anticipated to have led to a rise in costs in the to-be-reported quarter. Also, an increase in transaction-based expenses due to higher client activity and inflationary pressure across most expense lines is expected to have affected earnings. Nonetheless, employee reductions will help it reduce payroll compensations. We estimate expenses to decline 3.9% year over year to $7.40 billion.
What Our Model Predicts
Our proven model does not show that Goldman has the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is -8.91%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for third-quarter earnings has been revised 5% lower to $5.61 per share over the past week. The consensus estimate suggests a 32% year-over-year fall.
Also, the consensus estimate of $11.08 billion for quarterly revenues indicates a 7.44% year-over-year fall.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and The PNC Financial Services Group, Inc. (PNC - Free Report) are a couple of stocks that you may want to consider, as these have the right combination of elements to post earnings beat this season.
The Earnings ESP for FCNCA is +3.95% and currently sports a Zacks Rank #1 (Strong Buy). It is slated to report third-quarter 2023 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FCNCA’s third-quarter earnings has moved marginally north over the past week.
PNC is scheduled to release third-quarter 2023 results on Oct 13. It currently has an Earnings ESP of +1.26% and a Zacks Rank #3.
The Zacks Consensus Estimate for PNC’s third-quarter earnings has moved marginally south over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.