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Goldman (GS) Down 11.3% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Goldman Sachs (GS - Free Report) . Shares have lost about 11.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Goldman due for a breakout? 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 drivers.
Goldman Q3 Earnings Reflected Top line Strength and High Costs
Reflecting the highest strong year-to-date net revenues in eight years, Goldman’s third-quarter 2018 results recorded a positive earnings surprise of 15.9%. The company reported earnings per share of $6.28, comfortably beating the Zacks Consensus Estimate of $5.42. Further, the bottom line witnessed 25.1% year-over-year improvement.
The investment bank turned triumphant with strong equity underwriting revenues aiding continued momentum in investment banking business, supporting the bottom-line numbers. In addition, Investment Management business was strong. However, lower FICC revenues and elevated expenses were undermining factors.
Notably, the company witnessed low client activity level amid low levels of volatility in the Sep-end quarter.
Net earnings applicable to common shareholders came in at $2.5 billion, up 21% year over year.
Revenues Improve, Expenses Escalate
Goldman’s net revenues were up 4% year over year to $8.6 billion in the quarter under review. In addition, the revenue figure handily outpaced the Zacks Consensus Estimate of $8.4 billion.
Quarterly revenues, as per business segments, are as follows:
The Investment Banking division generated revenues of around $2 billion, up 10% year over year. Results highlight higher underwriting revenues (up 20%), aided by elevated equity underwriting revenues, partly offset by lower debt underwriting revenues. Notably, net revenues from initial public offerings escalated. Furthermore, increased financial advisory revenues (up 1%) were recorded.
The Investment Management division recorded revenues of $1.7 billion, up 12% year over year. The uptick was mainly driven by higher management and other fees, along with elevated transaction and significant incentive fees.
The Institutional Client Services division recorded revenues of $3.1 billion, down 1% year over year. The fall indicates lower net revenues in Fixed Income, Currency and Commodities Client Execution revenues (down 10% year over year), impacted by reduced revenues from interest rate products, along with credit products and mortgages, partly offset by elevated net revenues in commodities and currencies.
Increase in equities client execution and securities service revenues was partly offset by lower commissions and fees, resulting in higher Equities revenues.
The Investing and Lending division’s revenues of $1.9 billion in the quarter under review came in 1% lower on a year-over-year basis. The downside stemmed from the decline in revenues from investments in equities, partially muted by lower revenues from debt securities & loans.
Total operating expenses flared up 4% year over year to $5.6 billion. Expenses moved up mainly due to rise in non-compensation expenses (up 14%), partly offset by lower compensation expenses (down 3%).
Notably, higher net provisions for litigation and regulatory proceedings, and market development expenses were recorded.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Sep 30, 2018, the company’s Common Equity Tier 1 ratio was 12.4% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 11.5% recorded in the prior quarter.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 6% at the end of the July-Sep quarter, up from 5.8% witnessed in the previous quarter.
Return on average tangible common shareholders’ equity, on an annualized basis, was 13.8% as of Sep 30, 2018.
During the quarter, Goldman paid $311 million in common stock dividends and repurchased shares worth $1.24 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Goldman has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.
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Goldman (GS) Down 11.3% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Goldman Sachs (GS - Free Report) . Shares have lost about 11.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Goldman due for a breakout? 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 drivers.
Goldman Q3 Earnings Reflected Top line Strength and High Costs
Reflecting the highest strong year-to-date net revenues in eight years, Goldman’s third-quarter 2018 results recorded a positive earnings surprise of 15.9%. The company reported earnings per share of $6.28, comfortably beating the Zacks Consensus Estimate of $5.42. Further, the bottom line witnessed 25.1% year-over-year improvement.
The investment bank turned triumphant with strong equity underwriting revenues aiding continued momentum in investment banking business, supporting the bottom-line numbers. In addition, Investment Management business was strong. However, lower FICC revenues and elevated expenses were undermining factors.
Notably, the company witnessed low client activity level amid low levels of volatility in the Sep-end quarter.
Net earnings applicable to common shareholders came in at $2.5 billion, up 21% year over year.
Revenues Improve, Expenses Escalate
Goldman’s net revenues were up 4% year over year to $8.6 billion in the quarter under review. In addition, the revenue figure handily outpaced the Zacks Consensus Estimate of $8.4 billion.
Quarterly revenues, as per business segments, are as follows:
The Investment Banking division generated revenues of around $2 billion, up 10% year over year. Results highlight higher underwriting revenues (up 20%), aided by elevated equity underwriting revenues, partly offset by lower debt underwriting revenues. Notably, net revenues from initial public offerings escalated. Furthermore, increased financial advisory revenues (up 1%) were recorded.
The Investment Management division recorded revenues of $1.7 billion, up 12% year over year. The uptick was mainly driven by higher management and other fees, along with elevated transaction and significant incentive fees.
The Institutional Client Services division recorded revenues of $3.1 billion, down 1% year over year. The fall indicates lower net revenues in Fixed Income, Currency and Commodities Client Execution revenues (down 10% year over year), impacted by reduced revenues from interest rate products, along with credit products and mortgages, partly offset by elevated net revenues in commodities and currencies.
Increase in equities client execution and securities service revenues was partly offset by lower commissions and fees, resulting in higher Equities revenues.
The Investing and Lending division’s revenues of $1.9 billion in the quarter under review came in 1% lower on a year-over-year basis. The downside stemmed from the decline in revenues from investments in equities, partially muted by lower revenues from debt securities & loans.
Total operating expenses flared up 4% year over year to $5.6 billion. Expenses moved up mainly due to rise in non-compensation expenses (up 14%), partly offset by lower compensation expenses (down 3%).
Notably, higher net provisions for litigation and regulatory proceedings, and market development expenses were recorded.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Sep 30, 2018, the company’s Common Equity Tier 1 ratio was 12.4% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 11.5% recorded in the prior quarter.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 6% at the end of the July-Sep quarter, up from 5.8% witnessed in the previous quarter.
Return on average tangible common shareholders’ equity, on an annualized basis, was 13.8% as of Sep 30, 2018.
During the quarter, Goldman paid $311 million in common stock dividends and repurchased shares worth $1.24 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, Goldman has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.