Goldman Sachs (NYSE: GS) is expected to release its third quarter fiscal 2021 results on Friday, October 15. We expect Goldman Sachs to report mixed results, with earnings exceeding consensus estimates and earnings exceeding expectations. The bank beat Street expectations last quarter, with revenue increasing 16% year-on-year to $ 15.4 billion. The growth was driven by higher income from investment banking and asset management, partially offset by negative growth in sales and trading due to lower FICC (Fixed Income, Currency and Commodity). In addition, the company’s adjusted net income was boosted significantly during the quarter. This is partly explained by higher revenues, and partly by a favorable reduction in provisions for credit losses and lower operating expenses as a% of revenues. That said, we expect sales and trade to continue to suffer in the third quarter. In addition, investment banking income is expected to normalize as the economy recovers, although it will continue to dominate results.
Our forecast indicates that Goldman Sachs valuation is $ 406 per share, or 5% above the current market price of nearly $ 387. Our interactive dashboard analysis on Goldman Sachs Profit Snapshot has more details.
(1) Expected revenue slightly higher than consensus estimates
Goldman Sachs revenues for full year 2020 was $ 44.6 billion, up 22% year-on-year, mainly driven by 24% year-on-year growth in investment banking and a surge 43% in sales and trading activities, partially offset by an 11% drop in asset management revenues.
- The bank generates nearly 61% of total sales and trading and investment banking revenues combined. However, due to the effect of the Covid-19 crisis, which increased transaction volumes and subscription volumes in the market, the revenue share improved to 69% in 2020. This has improved. translated into 24% year-on-year growth in investment banking to $ 9.4 billion. , followed by a 43% jump in sales and trade to $ 21.2 billion. The growth momentum of the investment banking and sales and trading activities continued in the first quarter of 2021. However, the second quarter was marked by a decline in the sales and trading segment due to the decline in prices. FICC trading income. That said, the investment bank posted its second-highest figure on record in the second quarter. While sales and trade are expected to follow the same pattern as in the second quarter, we expect investment banking income to normalize in the third quarter.
- Asset management is the only segment in 2020 to show negative growth. It is mainly explained by the drop in income from the equity investment sub-category. The trend reversed in 2021, with segment revenue rising from – $ 96 million in the period last year to $ 4.61 billion in the first quarter and a 144% jump to 5.1 billion dollars in the second quarter. It is mainly driven by the growth of the equity investment sub-segment. We expect the same trend to continue in the third quarter.
- Overall, we forecast Goldman Sachs revenue to reach $ 52.8 billion in fiscal 2021.
Trefis estimates Goldman Sachs revenue for the third quarter of 2021 to be around $ 11.87 billion, 2% above the consensus estimate of $ 11.67 billion. We expect the investment banking and asset management businesses to drive third quarter results.
Unusual growth in sales and trading and investment banking was driven by increased transaction volumes in trading and investment banking. Going forward, volumes are expected to normalize as the economy recovers, hurting GS revenue. However, the wealth management and asset management segments are expected to continue their growth trajectory. Overall, Goldman Sachs revenue is expected to be around $ 52.8 billion for fiscal 2021. Our dashboard on Goldman Sachs revenues provides more details on the company’s operating segments as well as our forecast for the next two years.
2) BPA risks missing consensus estimates
Goldman Sachs’ adjusted earnings per share in the third quarter of 2021 is expected to be $ 9.10 per Trefis analysis, almost 10% lower than the consensus estimate of $ 10.11. The bank’s adjusted net profit rose 13% year-on-year to $ 8.9 billion in 2020, mainly due to higher revenues. Moreover, the same momentum continued in the first and second quarters – adjusted net income fell from $ 197 million to $ 5.3 billion in the second quarter. It is mainly explained by the increase in revenues and the growth in operating income. Operating income benefited from lower operating expenses as a% of sales 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’ net profit margin to improve in fiscal 2021, leading to adjusted net income of $ 16.2 billion, up 90% year-on-year. In addition, the bank relaunched its share buyback program during the year. This, along with the recent increase in the common stock dividend to $ 2 per share (60% growth) from the third quarter, will increase returns for shareholders. Overall, this will allow the bank to report EPS of $ 47.15.
(3) Estimate of the share price 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 to a price of $ 406, or 5% above the current market price of around $ 387.
Note: P / E multiples are based on the stock price at the end of the year and reported (or expected) adjusted earnings for the entire year
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