Banking, finance, and taxes

What to Look for in Goldman Sachs Earnings

Chris Lange

Published: January 19, 2016 1:25 pm

Last Updated: January 13, 2020 2:52 pm

Goldman Sachs Group Inc. (NYSE: GS) is scheduled to report its fourth-quarter financial results before the markets open on Wednesday. The consensus estimates from Thomson Reuters calls for earnings per share (EPS) of $3.56 on $7.14 billion in revenues. The same period from the previous year had $4.38 in EPS on $7.69 billion in revenue.

One problem that Goldman Sachs has experienced over the years is that its growth has been relatively stagnant in the long term. Sure there have been peaks and troughs, but the prices virtually average out to the current price level looking back as far as 2011. So the outlook for growth is not necessarily strong, not to mention this company has the third lowest dividend yield out of all Dow stocks — returns are questionable as well.

With market conditions the way that they are, we finally may be entering a stock-pickers market in 2016, when passive investors seemingly won’t have the returns that they have experienced in the past. An actively managed portfolio could outperform the broad market indexes and post greater returns. And who on Wall Street does this better than Goldman Sachs? At the same time, we might expect that this investment bank would see a bump in its trading outside of financial services due to the regulatory climate. Then there is the consideration that Goldman Sachs is regulated as a bank holding company due to the financial crisis bailouts, but there are no National Bank of Goldman Sachs branches to be found anywhere in America.

Goldman Sachs might be vulnerable to the fallout from the high-yield and international markets as well, with the Federal Reserve potentially increasing rates throughout 2016. Looking at the most recent earnings report, Goldman Sachs took a big hit in fixed income currency and commodities (FICC), which was down 33% year over year and 9% sequentially. Oppenheimer even pointed out that FICC trading accounted for 25% of Goldman’s revenues in 2014, down from 48% in 2009. Overall, industry FICC trading revenues have been down in 17 of the past 22 quarters. This could continue, and it very well may continue if regulators keep pressure on about what bank holding companies can really do in the trading of financial instruments.

• Citigroup reiterated a Buy rating.
• Nomura has a Neutral rating and lowered its price target to $207 from $215.
• Oppenheimer has an Outperform rating with a $259 price target.
• Keefe, Bruyette & Woods reiterated a Hold rating.

So far in 2016, Goldman Sachs has underperformed the market, with the stock down nearly 14% year to date. Over the past 52 weeks, the performance is not as bad but still down about 12%.

Shares of Goldman Sachs were trading up 0.7% to $156.67 on Tuesday, with a consensus analyst price target of $205.71 and a 52-week trading range of $153.81 to $218.77.