Will Goldman Sachs stock beat expectations in Q1? – Trefis
Goldman Sachs (NYSE: GS) is expected to release its results for the first quarter of fiscal 2021 on Wednesday April 14. We expect Goldman Sachs to outperform consensus estimates for both revenue and profit. The bank has posted better-than-expected results in each of the past three quarters, primarily due to its strength in sales and trading and in investment banking. Despite the economic downturn and the Covid-19 crisis, the company saw strong revenue growth in 2020, driven by a 43% year-over-year jump in the global markets division (sales and trading) and an increase in 24% of the investment bank. We expect the same trend to fuel the results for the first quarter of fiscal 2021 as well.
Our forecast indicates that Goldman Sachs valuation is about $ 366 per share, which is 12% more than the current market price of about $ 327. Watch our interactive dashboard analysis at Goldman Sachs pre-earnings: what to expect in the first quarter? for more details.
(1) Revenue expected slightly ahead of consensus estimates in Q1
Trefis estimates Goldman Sachs’ tax revenue for the first quarter of 2021 to be around $ 10.95 billion, slightly above the consensus estimate of $ 10.80 billion. The bank’s revenue of $ 44.6 billion in 2020 was a solid 22% above the 2019 figure – growth was exceptionally higher compared to the CAGR of 6.1% in 2016-19. This could mainly be attributed to higher trading activity in the securities market and an increase in subscription volumes (share subscription and issuance of debt securities), which boosted its trading banking and trading income. ‘investment. In addition, its consumer and wealth management unit, which contributed 13% of the revenue share in 2020, grew 10% year-on-year. While the wealth management business grew due to higher management and other fees and growth in average Assets Under Supervision (AuS), the consumer banking segment benefited from the increase in lending on credit cards and deposit balances. The only segment that recorded negative growth for the year was asset management (down 11% year-on-year), mainly due to lower equity investments and income from loans and debt. We expect the same momentum to continue in the first quarter of fiscal 2021.
The higher trading activity and a surge in subscription volumes in 2020 was due to the impact of the Covid-19 crisis and the economic downturn. However, as more people receive the Covid-19 vaccine and economic conditions improve, volumes are expected to normalize in the following quarters. This could hurt the bank’s revenue, limiting it to $ 41.1 billion in FY2021. Our dashboard on Goldman Sachs revenue offers more details on the business segments.
2) EPS likely to beat consensus estimates
Goldman Sachs first quarter 2021 adjusted earnings per share (EPS) is expected to be $ 8.98 according to Trefis analysis, nearly 3% above the consensus estimate of $ 8.75. The bank’s EPS figures increased in 2020 from $ 21.18 in 2019 to $ 24.94 in 2020. This is mainly due to two factors: revenue growth and lower operating expenses in percentage of income. Additionally, the build-up of bad debt provisions was the primary reason for Goldman’s decline in profitability figures for Goldman’s peers in 2020. While its bad debt provisions increased by $ 1.1 billion to 3.1 billion. billion over the year, to offset the increased credit default risk, the figure was still significantly lower than its peers (for example, JPM’s provisions were around $ 17.5 billion in 2020) due to GS’s smaller consumer banking operations compared to other banks. We expect the same trend to continue in the first quarter.
Given the expected mass distribution of the Covid-19 vaccine and the potential improvement in economic conditions, provisions for credit losses are expected to decline favorably in the coming months. In addition, the operating margin should see some improvement during the year. This will boost Goldman’s profitability and allow the bank to report EPS of around $ 32.76 in fiscal 2021.
(3) Stock price estimate 12% higher than current market price
Through our Goldman Sachs valuation, with an EPS estimate of around $ 32.76 and a multiple of P / E just above 11x in fiscal 2021, that translates to a price of $ 366, or 12% above from the current market price of about $ 327.
Note: P / E multiples are based on the stock price at the end of the year and the reported (or expected) adjusted profit for the full year
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