Goldman Sachs (NYSE: GS) is scheduled to report its fiscal Q4 2021 results on Tuesday, January 18, 2022. We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues. While investment banking grew on the back of growth in mergers & acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter.
(1) Revenues expected to beat the consensus estimates
Goldman Sachs’ revenues grew 22% y-o-y in 2020 to $44.6 billion. It was mainly driven by a 24% y-o-y growth in investment banking and a 43% jump in sales & trading businesses, partially offset by an 11% drop in asset management revenues.
- The bank is a global leader in the investment banking space. Further, investment banking combined with the sales & trading businesses generated close to 69% of the total revenues in 2020. The growth momentum in investment banking has continued in the first three quarters of 2021, with cumulative revenues growing 63% y-o-y to $11.1 billion, thanks to the jump in M&A and Initial Public Offering (IPO) activity. While the sales & trading segment grew 7% y-o-y to $18.1 billion over the same period, it was primarily due to higher equity trading revenues. We expect the fourth-quarter results to be on similar lines.
- Asset management was the only segment in 2020, which posted negative growth. This was primarily due to lower revenues in the equity investments sub-category. That said, the segment has witnessed a significant jump in revenues over the first three quarters. Markedly, the cumulative nine-month revenues increased 152% y-o-y to $12 billion, mainly driven by higher income from equity investments. We expect the same trend to continue in the fourth quarter.
- Overall, we expect Goldman Sachs’s revenues to touch $59.2 billion for full-year 2021.
Trefis estimates Goldman Sachs’s fiscal Q4 2021 revenues to be around $12.54 billion, 4% above the $12.01 billion consensus estimate. We expect the investment banking and asset management businesses to drive the fourth-quarter results.
Going forward, we expect the capital markets’ deal volumes and trading volumes to normalize with recovery in the economy. It will negatively impact the company’s top-line. However, the wealth and asset management divisions are likely to maintain their growth trajectory. Our dashboard on Goldman Sachs’ revenues offers more details on the company’s operating segments along with our forecast for FY2022.
(2) EPS is likely to miss the consensus estimates
Goldman Sachs Q4 2021 adjusted earnings per share (EPS) is expected to be $10.81 per Trefis analysis, almost 8% below the consensus estimate of $11.73. The bank had a strong run in 2020, with its adjusted net income increasing by 13% y-o-y to $8.9 billion. Further, the same momentum continued in the first three quarters of 2021. Notably, the cumulative nine months adjusted net income almost tripled to $17.3 billion on a year-on-year basis. It was partly because of higher revenues and partly due to a significant improvement in the operating margin. We expect the fourth-quarter results to follow the same trend. Overall, Goldman Sachs is likely to report an annual EPS of $59.37 for full-year 2021
(3) Stock price estimate 14% higher than the current market price
We arrive at Goldman Sachs’ valuation, using an EPS estimate of around $59.37 and a P/E multiple of just above 7x in fiscal 2021. This translates into a price of $447, which is 14% above the current market price of around $390.
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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|S&P 500 Return||-1%||-1%||111%|
|Trefis MS Portfolio Return||-5%||-5%||274%|
 Month-to-date and year-to-date as of 1/13/2022
 Cumulative total returns since the end of 2016