Goldman Sachs (GS) Easily Tops Earnings Expectations
Yesterday, Goldman Sachs (GS: Charts, News) topped analyst forecasts on both its top and bottom lines, attributing strong growth in its investment banking arm, equity offerings and debt underwriting results. The banking giant posted fourth quarter earnings of $5.60 per share on revenue of $9.24 billion, up from the $1.84 per share on revenue of $6.05 billion it posted in the prior year quarter.
Analysts had forecast the bank to earn $3.78 per share on $7.91 billion in revenue. Goldman's revenue included some one-time gains, such as the sale of its hedge fund administration business, which boosted revenue by $500 million. Daily Chart
Goldman Sachs' rosy earnings follow strong results from its peers JPMorgan Chase (JPM
) and Wells Fargo (WFC
), which both topped analyst estimates this month. However, JPMorgan's earnings were overshadowed by a $6.2 billion trading scandal, while a drop in mortgage revenue weighed down Wells Fargo. Goldman's debt underwriting operation generated $1.96 billion in revenues, a 5-year high that doubled its previous year's results. Meanwhile, its investment banking revenues grew 64% over the previous year. Its fixed income products also reported gains. Goldman also touted its top ranking in mergers and acquisitions during the year. However, the most bullish signal was that Goldman's annualized return on equity rose to 16.5%, up from 8.6% in the third quarter and 5.8% in the prior year quarter. Although CEO Lloyd C. Blankfein acknowledged "challenging" economic hurdles ahead, he stated that the bank's "strategic position provides a solid basis on which to grow and generate superior returns." Blankfein also attributed the bank's gains to increased cost reductions, which resulted in a tiny 3% increase in overall expenses. Various financial fees imposed on customers also helped enhance the effect of the cost reductions. Goldman also cut 3% of its staff during the quarter. Some analysts were reminded of the "good old days" of Goldman Sachs, when the bank was considered a titan on Wall Street and of the safest banks to invest in. Nomura Securities analyst Glenn Schorr noticed this, stating, "The fourth quarter reminds us a little of the old days and should give investors confidence in Goldman's future earnings power." Goldman Sachs stands out from other major U.S. banks because it deals almost exclusively with institutional investors - such as hedge funds, mutual funds, international corporations and other banks - and not everyday consumers. This reputation of being the bank of the super-rich has made the bank a popular target for the "Occupy Wall Street" movement and other liberal media outlets, particularly due to former CEO Henry Paulson's role as George W. Bush's Secretary of the Treasury. Fundamentally, Goldman Sachs trades at 0.98 book value, which makes it a tempting choice in the financial industry. Compare that to JPMorgan (0.99), Morgan Stanley (MS
) (1.03), Wells Fargo (1.28), and you have a safe investment that has very limited downside at current levels. On the other hand, Goldman's forward P/E of 10.9 is a premium compared to its other industry peers, and its quarterly dividend yield of 50 cents per share - a 1.43% yield at current prices - is fairly weak. Although the stock has surged 41% over the past twelve months, it is still 30% down from pre-crisis levels. Other News About GS Here'sWhyGoldmanSachsIsWinning
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Published on Jan 17, 2013
By Leo Sun