It has been about a month since the last earnings report for The Goldman Sachs Group, Inc.GS . Shares have lost about 4.8% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is GS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Goldman Sachs Q1 Earnings Impress on Improved Trading
Riding on strong fixed income trading revenues, Goldman's first-quarter 2018 results recorded a positive earnings surprise of 22.6%. The company reported earnings per share of $6.95, comfortably beating the Zacks Consensus Estimate of $5.67. Further, the bottom line witnessed 35% year-over-year improvement.
The investment bank turned triumphant with strong trading activities on high volatility during the first quarter, and a continued momentum in investment banking business, supporting the bottom-line numbers. In addition, investing & lending activities were strong. However, elevated expenses were an undermining factor.
Notably, the quarter witnessed improved market-making environment and increased client activity levels.
Net earnings applicable to common shareholders came in at $2.7 billion, up 27% year over year.
Revenues Improve, Expenses Escalate
Goldman's net revenues were up 25% year over year to $10 billion in the quarter under review. Moreover, the revenue figure handily outpaced the Zacks Consensus Estimate of $8.9 billion.
Quarterly revenues, as per business segments, are as follows:
The Institutional Client Services division recorded revenues of $4.4 billion, up 31% year over year. The rise indicates elevated net revenues in Fixed Income, Currency and Commodities Client Execution revenues (up 23% year over year), driven by higher revenues from commodities, currencies and credit products, partly mitigated by lower revenues from interest rate and mortgage products.
Increase in equities client execution, securities service revenues, along with high commissions and fees, resulted in the upsurge in Equities revenues (up 38%).
The Investment Banking division generated revenues of $1.8 billion, up 5% year over year. Results highlight higher underwriting revenues (up 27%), aided by elevated debt and equity underwriting revenues. However, lower financial advisory revenues (down 22%) due to decreased industry-wide completed mergers and acquisition transactions were recorded.
The Investment Management division recorded revenues of $1.8 billion, up 18% year over year. The uptick was mainly driven by higher management and other fees, along with elevated transaction and incentive fees.
The Investing and Lending division's revenues of $2.1 billion in the quarter came in 43% higher on a year-over-year basis. The upside stemmed from the surge in revenues from investments in equities and debt securities.
Total operating expenses flared up 21% year over year to $6.6 billion. Expenses moved up mainly due to rise in compensation and employee-benefit expenses (up 25%), and non-compensation expenses (up 14%).
Notably, lower net provisions for litigation and regulatory proceedings were recorded.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Mar 31, 2018, the company's Common Equity Tier 1 ratio was 11.1% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 10.7% recorded in the prior quarter.
The company's supplementary leverage ratio, on a fully phased-in basis, was 5.7% at the end of the reported quarter, down from 5.8% reported in the previous quarter.
Return on average common shareholders' equity, on an annualized basis, was 15.4% as of Mar 31, 2018.
Capital Deployment Update
During first-quarter 2018, the company repurchased 3 million shares of its common stock at an average price per share of $264.32 and a total cost of $800 million.
Concurrent with the earnings release, Goldman's board of directors hiked the quarterly common stock dividend to 80 cents per share, up 6.7% from the prior payout. The new dividend will be paid on Jun 28 to common shareholders of record as on May 31, 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.
The Goldman Sachs Group, Inc. Price and Consensus
At this time, GS has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. The stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
The company's stock is suitable solely for value based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise GS has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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