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IB, NII to Aid Goldman's (GS) Q4 Earnings, Trading to Hurt
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The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release fourth-quarter and full-year 2023 earnings on Jan 16, before market open. The company is expected to have witnessed year-over-year growth in quarterly revenues and earnings.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. Its results have been supported by strong Fixed Income, Currency and Commodities (FICC), financing revenues as well as strength in the consumer banking business. However, higher expenses posed headwinds.
Over the trailing four quarters, GS’ earnings surpassed the consensus estimate in two occasions and missed twice. The company delivered a negative earnings surprise of 7.80%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
Market-Making Revenues: The chief financial officer of GS, Denis Coleman, during Goldman Sachs’ U.S. Financial Services Conference stated, “We're seeing sort of less volatility across asset classes.” Thus, muted market volatility and client activity are expected to have weighed on quarterly trading performance. Hence, Goldman is likelyto witness uninspiring results in FICC and equity trading revenues.
Moreover, Goldman is expected to have witnessed a tougher competition from the prior-year performance, affecting the company’s year-over-year results in fourth-quarter 2023.
The Zacks Consensus Estimates for FICC and equity revenues is pegged at $2.7 billion and $2.3 billion, indicating a decline of 20.3% and 22.4%, respectively, from the last reported quarter. We estimate the metrics to reach $2.9 billion and $2.5 billion, respectively.
Investment Banking (IB) Fees: Per data compiled by Bloomberg, the merger and acquisition value in 2023 aggregated $2.7 trillion, missing the $3 trillion mark, which is the lowest annual value recorded since 2013. Hence, IB business is likely to have been significantly affected during the year.
Nonetheless, global deal-making witnessed a slight rebound in the fourth quarter, and green shoots were observed in capital markets and issuance activities. Notably, at the conference held in early December, bank executives stated that global deal-making conditions have started to improve. The major factor driving a better picture was the stabilizing interest rate environment.
Coleman added at the conference, “We did see some major natural resource sector merger deals take place earlier in the fall. Goldman Sachs was on both of those deals, given our merger franchise.” Also, there have been quite a few initial public offerings during the quarter to be reported. These are likely to have positively impacted Goldman’s quarterly IB revenues.
The Zacks Consensus Estimate for IB fees of $1.6 billion indicates a 2.8% growth from the prior quarter’s actuals. We anticipate IB income to be $1.5 billion.
Net Interest Income (NII): Per Fed’s latest data, demand for commercial and industrial loans weakened in the first two months of the quarter under review from the third-quarter 2023 level. Nevertheless, demand for consumer loans as well as commercial and residential real estate loans showed signs of improvement in November from third-quarter 2023 levels. Hence, we believe loan growth for Goldman is likely to have been modest.
Also, while Federal Reserve paused interest rate hikes during fourth-quarter 2023, interest rates remained at a 22-year high of 5.25-5.5%. Though, such high interest rates are likely to have increased funding costs to some extent, the bank’s decent loan demand during the quarter is expected to have positively impacted NII growth.
The Zacks Consensus Estimate for NII of $1.9 billion indicates a 24% increase from the prior quarter’s reported figure. We project NII to be $1.7 billion.
Expenses: Goldman’s investments in technology and market development expenses for business expansion are anticipated to have led to a rise in costs in the to-be-reported quarter. Nonetheless, employee reductions will help it save $600 million and $400 million in payroll and non-compensation expenses, respectively, in 2023. We estimate quarterly expenses to decline 16.5% on a sequential basis to $7.6 billion.
What Our Model Predicts
Our proven model shows that Goldman does not have the right combination of two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for Goldman is -17.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Goldman currently carries a Zacks Rank #4 (Sell).
The consensus estimate for full-year 2023 earnings is pegged at $22.35 per share, declining marginally over the past week. Also, it indicates a decrease of 25.7% from the prior-year level.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.9% downward to $4.67 per share over the past week. Nonetheless, it suggests a 40.7% year-over-year increase.
The consensus estimate for quarterly revenues of $11 billion indicates 3.4% growth from the prior-year quarter's actuals.
The Zacks Consensus Estimate for full-year 2023 revenues is pegged at $45.9 billion, implying a decline of 3.1% from a year ago.
Stocks That Warrant a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Northern Trust Corporation (NTRS - Free Report) is slated to report fourth-quarter and full-year 2023 results on Jan 18. It has an Earnings ESP of +5.11% and carries a Zacks Rank #3, at present.
Over the past 60 days, the Zacks Consensus Estimate for NTRS’ quarterly earnings per share has moved 3.9% south to $1.24.
Image: Bigstock
IB, NII to Aid Goldman's (GS) Q4 Earnings, Trading to Hurt
The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release fourth-quarter and full-year 2023 earnings on Jan 16, before market open. The company is expected to have witnessed year-over-year growth in quarterly revenues and earnings.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. Its results have been supported by strong Fixed Income, Currency and Commodities (FICC), financing revenues as well as strength in the consumer banking business. However, higher expenses posed headwinds.
Over the trailing four quarters, GS’ earnings surpassed the consensus estimate in two occasions and missed twice. The company delivered a negative earnings surprise of 7.80%, 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
Major Factors at Play
Market-Making Revenues: The chief financial officer of GS, Denis Coleman, during Goldman Sachs’ U.S. Financial Services Conference stated, “We're seeing sort of less volatility across asset classes.” Thus, muted market volatility and client activity are expected to have weighed on quarterly trading performance. Hence, Goldman is likelyto witness uninspiring results in FICC and equity trading revenues.
Moreover, Goldman is expected to have witnessed a tougher competition from the prior-year performance, affecting the company’s year-over-year results in fourth-quarter 2023.
The Zacks Consensus Estimates for FICC and equity revenues is pegged at $2.7 billion and $2.3 billion, indicating a decline of 20.3% and 22.4%, respectively, from the last reported quarter. We estimate the metrics to reach $2.9 billion and $2.5 billion, respectively.
Investment Banking (IB) Fees: Per data compiled by Bloomberg, the merger and acquisition value in 2023 aggregated $2.7 trillion, missing the $3 trillion mark, which is the lowest annual value recorded since 2013. Hence, IB business is likely to have been significantly affected during the year.
Nonetheless, global deal-making witnessed a slight rebound in the fourth quarter, and green shoots were observed in capital markets and issuance activities. Notably, at the conference held in early December, bank executives stated that global deal-making conditions have started to improve. The major factor driving a better picture was the stabilizing interest rate environment.
Coleman added at the conference, “We did see some major natural resource sector merger deals take place earlier in the fall. Goldman Sachs was on both of those deals, given our merger franchise.” Also, there have been quite a few initial public offerings during the quarter to be reported. These are likely to have positively impacted Goldman’s quarterly IB revenues.
The Zacks Consensus Estimate for IB fees of $1.6 billion indicates a 2.8% growth from the prior quarter’s actuals. We anticipate IB income to be $1.5 billion.
Net Interest Income (NII): Per Fed’s latest data, demand for commercial and industrial loans weakened in the first two months of the quarter under review from the third-quarter 2023 level. Nevertheless, demand for consumer loans as well as commercial and residential real estate loans showed signs of improvement in November from third-quarter 2023 levels. Hence, we believe loan growth for Goldman is likely to have been modest.
Also, while Federal Reserve paused interest rate hikes during fourth-quarter 2023, interest rates remained at a 22-year high of 5.25-5.5%. Though, such high interest rates are likely to have increased funding costs to some extent, the bank’s decent loan demand during the quarter is expected to have positively impacted NII growth.
The Zacks Consensus Estimate for NII of $1.9 billion indicates a 24% increase from the prior quarter’s reported figure. We project NII to be $1.7 billion.
Expenses: Goldman’s investments in technology and market development expenses for business expansion are anticipated to have led to a rise in costs in the to-be-reported quarter. Nonetheless, employee reductions will help it save $600 million and $400 million in payroll and non-compensation expenses, respectively, in 2023. We estimate quarterly expenses to decline 16.5% on a sequential basis to $7.6 billion.
What Our Model Predicts
Our proven model shows that Goldman does not have the right combination of two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for Goldman is -17.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Goldman currently carries a Zacks Rank #4 (Sell).
The consensus estimate for full-year 2023 earnings is pegged at $22.35 per share, declining marginally over the past week. Also, it indicates a decrease of 25.7% from the prior-year level.
The Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.9% downward to $4.67 per share over the past week. Nonetheless, it suggests a 40.7% year-over-year increase.
The consensus estimate for quarterly revenues of $11 billion indicates 3.4% growth from the prior-year quarter's actuals.
The Zacks Consensus Estimate for full-year 2023 revenues is pegged at $45.9 billion, implying a decline of 3.1% from a year ago.
Stocks That Warrant a Look
Here are a couple of bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.
Northern Trust Corporation (NTRS - Free Report) is slated to report fourth-quarter and full-year 2023 results on Jan 18. It has an Earnings ESP of +5.11% and carries a Zacks Rank #3, at present.
Over the past 60 days, the Zacks Consensus Estimate for NTRS’ quarterly earnings per share has moved 3.9% south to $1.24.
First Horizon Corporation (FHN - Free Report) is scheduled to release fourth-quarter and full-year 2023 earnings on Jan 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +9.68%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for FHN’s quarterly earnings has remained unchanged at 31 cents per share over the past 60 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.