Goldman Sachs Stock To Top The Consensus in Q2?

by Trefis Team
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Goldman Sachs (NYSE: GS) is scheduled to report its fiscal Q2 2021 results on Tuesday, July 13. We expect Goldman Sachs to edge past the consensus estimates for revenues and earnings. The bank outperformed the consensus estimates in the first quarter of 2021 by a huge margin. This was mainly driven by a significant jump in investment banking and sales & trading revenues on a year-on-year basis, followed by positive growth in the asset management business. We expect the same trend to continue in the second quarter of FY2021 as well.

Our forecast indicates that Goldman Sachs’ valuation is around $385 per share, which is 5% more than the current market price of $368. Look at our interactive dashboard analysis on Goldman Sachs’ pre-earnings: What To Expect in Q2? for more details. 

(1) Revenues expected to be slightly ahead of the consensus estimates in Q2

Trefis estimates Goldman Sachs’ fiscal Q2 2021 revenues to be around $11.98 billion, marginally above the $11.79 billion consensus estimate. GS top-line surged 22% in 2020, touching $44.6 billion, primarily driven by a jump in sales & trading and investment banking revenues. The growth was further complemented by a rise in wealth and consumer banking revenues. On the flip side, the only division that suffered in the year was asset management. While the growth momentum in investment banking and sales & trading businesses continued in the first quarter of 2021 as well, asset management also posted strong growth driven by record revenues in the Equity investments sub-segment. We expect the same momentum to continue in the second quarter of FY2021 too.

The sales & trading and investment banking revenues are linked to trading volumes and underwriting deal volumes respectively, which have seen an unusual surge over the recent quarters. However, we expect both to normalize over the coming months. That said, the wealth management and asset management businesses are expected to continue their growth trajectory in the year. Overall, the firm’s revenues are likely to touch $49.8 billion in FY2021. Our dashboard on Goldman Sachs revenues offers more details on the company’s segments.

2) EPS likely to top the consensus estimates

Goldman Sachs’ Q2 2021 adjusted earnings per share (EPS) is expected to be $9.58 per Trefis analysis, just above the consensus estimate of $9.45. GS’ profitability figures improved in 2020, thanks to the higher revenues and lower operating expenses as a % of revenues. On the flip side, the company increased its provisions for credit losses in 2020 to compensate for the higher risk of loan defaults. Although the bank’s loan portfolio is not as big as its peers, the build-up in the provisions did have some negative impact on its profitability. Notably, the firm has reduced its provisions over the recent quarters, suggesting some recovery in the loan repayment capacity of its customers. The same trend continued in the first quarter of 2021, as well, and is expected to drive second-quarter results, too.

Goldman Sachs’ net income margin is likely to improve in the year. It will boost Goldman’s EPS figure to $44.02 in FY2021.

(3) Stock price estimate 5% more than current market price

Going by our Goldman Sachs valuation, with an EPS estimate of around $44.02 and a P/E multiple of just below 9x in fiscal 2021, this translates into a price of $385, which is 5% above the current market price of $368.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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