Goldman Sachs Earnings Preview: Strong Earnings Beat On The Cards For Goldman?

by Trefis Team
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Goldman Sachs (NYSE:GS) is scheduled to release its Q4 and full-year 2019 results before the market opens on Wednesday, January 15. Trefis details expectations from the premier investment bank’s earnings in an interactive dashboard, parts of which are highlighted below. We believe that Goldman Sachs will comfortably beat FY19 earnings expectations despite missing on revenues. We expect revenues to have decreased 4.5% year-on-year to $35 billion primarily due to the expected drop in trading revenues and investment banking business. This is marginally below the consensus estimate of $35.1 billion. The decrease in revenues coupled with nearly identical expenses compared to the previous year should have weighed on Goldman’s net income margin and reduced the EPS figure to $22.24 for the year. Notably, though, our estimate is higher than the consensus EPS figure of $21.83.

That said, we believe that the continuing revenue pressure will overshadow the bank’s stronger-than-expected earnings figure and will likely result in Goldman Sachs’ stock price decreasing once earnings are announced. In fact, our forecast indicates that Goldman Sachs’ valuation is $229 a share, which is roughly 5% below its current price of $242.

(1) Goldman Sachs’ revenues are expected to decrease 4.5% from $36.6 billion in 2018 to $35 billion in 2019; marginally below consensus estimates

  • Trefis estimates Goldman Sachs’ 2019 revenues to be $35 billion, marginally below the consensus estimate of $35.1 billion
  • Total revenues have increased at an average annual rate of 9% over the last three years, from $30.6 billion in 2016 to $36.6 billion in 2018. However, it is expected to have dropped 4.5% y-o-y in 2019 – a decrease of $1.66 billion.
  • This would be primarily caused by an $840 million reduction in revenues for the Institutional Client Services (ICS) segment from the recent slump in bond yields and lower consumer activity level.
  • Further, Investment Banking revenues will likely report a decrease in equity underwriting & debt origination revenues due to negative market conditions and lower consumer activity in the underwriting space.
  • However, we expect Goldman Sachs’ revenues to grow at an average annual rate of 3% in the coming years and cross $36.2 billion by 2020.

Our interactive dashboard analysis, How Does Goldman Sachs Make Money?, provides an in depth view of the company’s revenues along with our forecasts for the next three years.

 

(2) EPS expected to decrease 12% from $25.27 in 2018 to $22.24 in 2019 – comfortably above consensus estimates

  • Goldman Sachs’ 2019 earnings per share (EPS)is expected to be $22.24 per Trefis analysis, 2% higher than the consensus estimate of $21.83 per
  • A year-on-year decrease in revenues as detailed above coupled with nearly identical expenses will reduce the EPS figure despite an expected drop in outstanding shares by 6%.
  • As we forecast Goldman’s Revenues to have dropped even as Expenses stagnated in 2019 (-4.5% vs. 0%), this will result in a 3.5 percentage point reduction in Goldman’s Net Income Margin figure from 26.9% in 2018 to 23.4% in 2019.
  • For 2020, we believe that slight growth in revenues and expenses will result in the adjusted net income margin increasing slightly to 23.6%

Our interactive dashboard analysis, How Does Goldman Sachs Spend Its Money?, provides an in depth view of the company’s expenses.

(3) Stock price estimate slightly below market price

  • A trailing P/E multiple of 10.3x looks appropriate for Goldman Sachs’ stock, which is marginally higher than the current implied P/E multiple of 10.1x
  • Trefis’ forecast for Goldman Sachs’ 2019 earnings is slightly higher than market expectations, however the P/E multiple is lower. As a result, we estimate a fair value of $229 for Goldman Sachs’ stock as opposed to the current market price around $242.

Additionally, you can input your estimates for Goldman Sachs’ key metrics in our interactive dash board for Goldman Sachs’ pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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