Back to top

Image: Bigstock

Goldman (GS) Tops Q4 Earnings Estimates on Solid Revenues

Read MoreHide Full Article

Driven by a surge in fixed-income revenues, The Goldman Sachs Group, Inc.’s (GS - Free Report) fourth-quarter 2016 results recorded a positive earnings surprise of 6.7%. The company reported earnings per share of $5.08, outpacing the Zacks Consensus Estimate of $4.76. Moreover, the bottom line witnessed significant improvement on a year-over-year basis.

Results were primarily aided by fixed income revenues and lower expenses. Management stated the Fixed Income, Currency and Commodities Client Execution unit experiencedimproved market conditions, with rise in interest rates and tighter credit spreads.

Net earnings of $2.3 billion reflected a whopping rise from the prior-year quarter.

For full-year 2016, net income per share of $16.29 was higher than the year-ago earnings of $12.14. Earnings were also above the Zacks Consensus Estimate of $15.75 per share.

Solid Revenues & Low Expenses

For full-year 2016, the company’s reported revenues of $30.6 billion were down 9% year over year. However, revenues managed to beat the Zacks Consensus Estimate of $29.9 billion.

Goldman’s net revenue climbed 12% year over year to $8.2 billion in the quarter under review. In addition, revenues exceeded the Zacks Consensus Estimate of $7.4 billion.

Quarterly revenues, as per business segments, are as follows:

The Institutional Client Services division recorded revenues of $3.6 billion, up 25% year over year. The rise reflected strong growth in Fixed Income, Currency and Commodities Client Execution revenues (up 78% year over year), driven by higher revenues in all businesses, mainly from interest rate and products and credit products.

However, due to lower net revenues in equities client execution, the company recorded fall in Equities revenues (down 9%). But, lower volumes resulted in reduced commissions and fees.

The Investment Banking division generated revenues of $1.5 billion, down 4% year over year. Results reflected lower financial advisory revenues (down 19%), affected by the decreased number of industry-wide transactions during the quarter. However, the quarter witnessed higher debt underwriting, partially offset bylower equity underwriting fees.

The Investment Management division recorded revenues of $1.6 billion, up 3% year over year. The growth was mainly driven by higher incentive and transaction fees, while management and other fees declined.

The Investing and Lending division’s revenues of $1.5 billion in the quarter increased 15% year over year. The rise was aided by surge in revenues from investments in equities as well as higher revenues in debt securities and loans.

Total operating expenses plunged 23% year over year to $4.8 billion. Expenses fell largely due to decline in almost all components of expenses except compensation and employee benefits expenses (up 19%). Non-compensation expenses were also down 44% due to decreased provisions for litigation and regulatory proceedings.

Strong Capital Position

Goldman exhibited a robust capital position in the reported quarter. As of Dec 31, 2016, the company’s Common Equity Tier 1 ratio was 13.1% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 12.4% in the prior-year quarter. The company’s supplementary leverage ratio on a fully phased-in basis was 6.4% at the end of the fourth quarter, up from 5.9% in the prior-year quarter.

Adjusted return on average common shareholders’ equity, on an annualized basis, was 11.4% in the reported quarter.

Capital Deployment Update

During 2016, Goldman repurchased 36.6 million shares of its common stock at an average price per share of $165.88 and a total cost of $6.07 billion. Notably, during fourth-quarter 2016, the company repurchased 7.6 million shares of its common stock at an average price per share of $197.8 and a total cost of $1.50 billion.

Conclusion

Results of Goldman indicate a sturdy quarter. The company’s well-diversified business, apart from its solid investment banking operations, continues to ensure earnings stability. Its focus to capitalize on new growth opportunities through several strategic investments, including its digital consumer lending platform, should bolster overall business growth. However, costs stemming from unresolved litigations and stringent financial reforms remain near-to medium-term headwinds.
 

Goldman Sachs Group Inc. Price, Consensus and EPS Surprise

Goldman Sachs Group Inc. Price, Consensus and EPS Surprise | Goldman Sachs Group Inc. Quote

Currently, Goldman carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Major Banks

Bank of America Corporation (BAC - Free Report) reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. Further, the figure was 48% higher than the year-ago quarter number.

Driven by interest income, Wells Fargo & Company’s (WFC - Free Report) fourth-quarter 2016 earnings recorded a positive surprise of about 3%. Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, it compared favorably with the prior-year quarter’s earnings of $1.00 per share.Including net hedge ineffectiveness accounting impact of 7 cents, earnings came in at 96 cents per share.

Driven by impressive trading revenues, JPMorgan Chase & Co.’s (JPM - Free Report) fourth-quarter 2016 earnings of $1.71 per share easily surpassed the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>

Published in