Special Bulletin: Goldman Sachs Group (GS) Earnings October 18, 2016
Today, Goldman Sachs Group (GS) reported a tremendous third quarter, with earnings per share (EPS) of $4.88 vs. Wall Street’s consensus estimate of $3.82, and up 47% vs. $2.90 EPS a year ago (December year-end). Goldman Sachs is a global investment banker, serving consumer, institutional and government clients. The stock is featured in the Cabot Undervalued Stocks Advisor Growth & Income Portfolio.
Quarterly net income was $2.09 billion vs. $1.43 billion a year ago. Revenues were $8.17 billion vs. the consensus estimate of $7.42 billion, and vs. $6.86 billion a year ago. A 17% surge in trading revenue contributed to the quarter’s successes. M&A revenue fell 19%, while revenue from IPOs and stock sales rose 19%, and debt-underwriting revenue rose 17%. Return on equity (ROE) is on a strong uptrend, coming in at 11.2% vs. 7.0% a year ago.
In other news, Goldman introduced its new online lending platform last week, which offers unsecured loans to borrowers. The loans will provide Goldman with stable, recurring net interest income.
Goldman’s annual capital plan was approved by the Federal Reserve in late June. As a result, Goldman plans to increase its dividend and its share repurchase authorization. However, the company has not yet implemented those increases.
Since 2012, Goldman has announced dividend increases that were spaced between two and four quarters apart; with the current dividend remaining steady for seven quarters. Today’s dividend announcement confirmed another quarter of the current 65 cents per share dividend.
One would have to assume that Goldman’s approved capital plan will be put into effect at some point prior to June 2017, when the next year’s capital plan will, in theory, be approved. Therefore, investors await news of a planned and pre-approved dividend increase and a new share repurchase authorization between now and June 2017.
Consensus earnings estimates for full-year 2016 keep climbing, from a low expectation of 11.9% EPS growth in mid-July, to 17.8% last week. Those numbers will invariably ratchet upward again, in light of today’s blowout earnings report.
Wall Street expects Goldman’s 2017 EPS to grow 20.7%. The 2016 and 2017 P/Es are 12.0 and 10.0. The dividend yield is 1.5%.
After rising 24.8% from its June lows to its September highs, GS pulled back and rested. The stock appears immediately ready to break past upside resistance at 171, and rise toward the low 190s. GS is an extremely undervalued large-cap bank stock, with a stronger 2016 earnings outlook than its banking peers. Buy now, to catch the next run-up in the share price! Strong Buy.
Please note that I don’t plan to write a Special Bulletin for every earnings announcement. I will, however, notify you when earnings fluctuate wildly from consensus expectations, when share prices become especially volatile upon news announcements, or when good news becomes a catalyst for a share price breakout. You’re always welcome to send me an email if you are wondering whether a piece of news is significant and potentially creating a buying or selling opportunity.