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: Charts, News) and Wells Fargo (WFC: Charts, News), 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: Charts, News) (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 Is Goldman Sachs "winning" like Charlie Sheen? GoldmanSachs' netsurgesoninvestmentbanking Goldman's investment arm pushes revenue to new highs. Other Stocks in the News WillBRICMarketsBoostAmazonin 2013? Will Amazon find growth in the Brazilian Amazon? IsApple'sTimCooktheNextSteveBallmer? Is Tim Cook too much like the Other Steve for his own good? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jan 17, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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