Goldman Sachs (NYSE: GS) is scheduled to report its fiscal Q3 2021 results on Friday, October 15. We expect Goldman Sachs to report mixed results, with revenues topping the consensus estimates and earnings missing the expectations. The bank outperformed the street expectations in the last quarter, with revenues increasing by 16% y-o-y to $15.4 billion. The growth was because of higher investment banking and asset management revenues, partially offset by negative growth in the sales & trading due to lower FICC (Fixed income, Currency, and Commodity) trading revenues. Further, the firm’s adjusted net income received a major boost in the quarter. This was partially driven by higher revenues, and partially due to a favorable reduction in provisions for credit losses and lower operating expenses as a % of revenues. That said, we expect the sales & trading to continue to suffer in the third quarter. Further, the investment banking revenues are likely to normalize due to recovery in the economy, although it will still dominate the results.
The forecast indicates that Goldman Sachs’ valuation is $406 per share, which is 5% above the current market price of close to $387.
1) Revenues expected to be slightly ahead of the consensus estimates:
The expectation Goldman Sachs’s revenues to touch $52.8 billion for FY2021.
Trefis estimates Goldman Sachs’s fiscal Q3 2021 revenues to be around $11.87 billion, 2% above the $11.67 billion consensus estimate. We expect the investment banking and asset management businesses to drive the third-quarter results.
The unusual growth in sales & trading and investment banking was driven by higher trading and investment banking deal volumes. Moving forward, the volumes are likely to normalize with recovery in the economy, hurting the GS’ top-line. However, the wealth and asset management segments are likely to continue their growth trajectory.
2) EPS is likely to miss the consensus estimates:
Goldman Sachs Q3 2021 adjusted earnings per share (EPS) is expected to be $9.10 per Trefis analysis, almost 10% below the consensus estimate of $10.11. The bank’s adjusted net income increased 13% y-o-y to $8.9 billion in 2020, mainly due to higher revenues. Further, the same momentum continued in the first and second quarter – adjusted net income increased from $197 million to $5.3 billion in Q2. It was mainly due to higher revenues and growth in operating income. The operating income benefited from lower operating expenses as a % of revenues and a favorable decrease in provisions for loan losses. We expect the same trend to continue in the third quarter.
Going forward, we expect Goldman Sachs’s net income margin to improve in FY2021, leading to an adjusted net income of $16.2 billion – up 90% y-o-y. Further, the bank has restarted its share repurchase program in the year. This coupled with the recent increase in the common stock dividend to $2 per share (60% growth) from the third quarter will increase the shareholder returns. Overall, it will enable the bank to report an EPS of $47.15.
3) Stock price estimate 5% higher than the current market price;
We arrive at Goldman Sachs’ valuation, using an EPS estimate of around $47.15 and a P/E multiple of just below 9x in fiscal 2021. This translates into a price of $406, which is 5% above the current market price of around $387.
Goldman Sachs Long (Buy)
Enter at: 388.88