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IB, Market Making Revenues to Aid Goldman's (GS) Q1 Earnings
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The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release first-quarter 2024 earnings on Apr 15, before market open. The company is expected to have witnessed year-over-year growth in quarterly revenues, while its earnings are likely to have declined.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. Its results were supported by strong Fixed Income, Currency and Commodities revenues and the consumer banking business. However, higher expenses created headwinds.
Over the trailing four quarters, GS’s earnings surpassed the consensus estimate on three occasions and missed once. The company delivered a negative earnings surprise of 15.88%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
In March, Goldman completed the sale of GreenSky, its home-improvement lending platform, to a consortium that includes KKR, Bayview Asset Management and CardWorks, and is led by investment firm, Sixth Street Partners. GreenSky was acquired by GS in 2022 for $1.7 billion. However, in October 2023, GS announced intentions to dispose of the business in a major business restructuring initiative.
Major Factors at Play
Market-Making Revenues: Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate path drove the client activity. However, volatility was lower in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
The Zacks Consensus Estimates for market-making revenues is pegged at $5.29 billion, indicating an increase of 51.4% from the prior quarter’s reported figure. We, too, estimate the metrics to reach $5.29 billion.
Investment Banking (IB) Fees: Global mergers and acquisitions bounced back in the first quarter of 2024, after discouraging performances in the past years. Deal value and volume witnessed remarkable increases, driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions have continued to act as headwinds.
Likewise, the IPO market activity was decent in the first quarter on the back of a robust equity market performance. This also drove some activity in follow-up equity issuances. Further, debt issuance volume was aided by lower yields and a better operating backdrop than the last year.
Favorable macro-environment, along with Goldman’s top rank in worldwide announced and completed mergers and acquisitions, equity and equity-related offerings, and common stock offerings, is likely to have lent it an edge over its peers.
This dominant position has been driven by the company’s strength in advisory services. It also leads in equity underwriting and equity trading. Hence, these are likely to have positively impacted Goldman’s quarterly IB revenues.
The Zacks Consensus Estimate for IB fees of $1.72 billion indicates 4.2% growth from the prior quarter’s actual. We anticipate an IB income of $1.71 billion.
Net Interest Income (NII): A stabilizing macroeconomic backdrop, along with the expectations of the Fed easing interest rates going forward, is likely to have offered some support to the lending scenario in the quarter. Notably, the demand for commercial and industrial loans, and real estate loans, specifically commercial real estate loans, improved from the fourth-quarter 2023 end, per the Fed’s latest data. Moreover, consumer lending showed signs of improvement. Hence, loan growth for Goldman is likely to have been decent.
Also, while the Fed paused interest rate hikes in first-quarter 2024, interest rates remained at a 22-year high of 5.25-5.5%. Though such high interest rates are likely to have increased funding costs to some extent, the bank’s decent loan demand during the quarter is expected to have positively impacted NII growth.
The Zacks Consensus Estimate for NII of $1.64 billion indicates a 22% increase from the prior quarter’s reported figure. We project a NII of $1.39 billion.
Expenses: Goldman’s investments in technology and market development expenses for business expansion are anticipated to have led to a rise in costs in the to-be-reported quarter. Nonetheless, employee reductions are expected to have helped reduce payroll and non-compensation expenses. We estimate quarterly expenses to increase 7.4% on a sequential basis to $9.12 billion.
What Our Model Predicts
Our proven model shows that Goldman has the right combination of two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for Goldman is +1.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: Goldman currently carries a Zacks Rank #3.
The consensus estimate for first-quarter earnings is pegged at $8.66 per share, declining marginally over the past week. Also, it indicates a decrease of 1.5% from the prior-year level.
The consensus estimate for quarterly revenues of $11 billion indicates 3.4% growth from the prior-year quarter's actual.
The Zacks Consensus Estimate for first-quarter 2024 revenues is pegged at $12.89 billion, implying a rise of 5.5% from that reported a year ago.
Other Stocks That Warrant a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat this time around:
Truist Financial (TFC - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.83%.
TFC’s quarterly earnings estimates have been unchanged at 78 cents over the past month.
Image: Bigstock
IB, Market Making Revenues to Aid Goldman's (GS) Q1 Earnings
The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release first-quarter 2024 earnings on Apr 15, before market open. The company is expected to have witnessed year-over-year growth in quarterly revenues, while its earnings are likely to have declined.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. Its results were supported by strong Fixed Income, Currency and Commodities revenues and the consumer banking business. However, higher expenses created headwinds.
Over the trailing four quarters, GS’s earnings surpassed the consensus estimate on three occasions and missed once. The company delivered a negative earnings surprise of 15.88%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote
Key Development in the Quarter
In March, Goldman completed the sale of GreenSky, its home-improvement lending platform, to a consortium that includes KKR, Bayview Asset Management and CardWorks, and is led by investment firm, Sixth Street Partners. GreenSky was acquired by GS in 2022 for $1.7 billion. However, in October 2023, GS announced intentions to dispose of the business in a major business restructuring initiative.
Major Factors at Play
Market-Making Revenues: Client activity was decent in the first quarter. The expectations of a soft landing of the U.S. economy, gradually cooling inflation and clarity on the Fed rate path drove the client activity. However, volatility was lower in the equity markets and other asset classes, including commodities, bonds and foreign exchange.
The Zacks Consensus Estimates for market-making revenues is pegged at $5.29 billion, indicating an increase of 51.4% from the prior quarter’s reported figure. We, too, estimate the metrics to reach $5.29 billion.
Investment Banking (IB) Fees: Global mergers and acquisitions bounced back in the first quarter of 2024, after discouraging performances in the past years. Deal value and volume witnessed remarkable increases, driven by solid financial performances, fading recession risks, buoyant markets and expected rate cuts this year. Yet, tough scrutiny by antitrust regulators and lingering geopolitical tensions have continued to act as headwinds.
Likewise, the IPO market activity was decent in the first quarter on the back of a robust equity market performance. This also drove some activity in follow-up equity issuances. Further, debt issuance volume was aided by lower yields and a better operating backdrop than the last year.
Favorable macro-environment, along with Goldman’s top rank in worldwide announced and completed mergers and acquisitions, equity and equity-related offerings, and common stock offerings, is likely to have lent it an edge over its peers.
This dominant position has been driven by the company’s strength in advisory services. It also leads in equity underwriting and equity trading. Hence, these are likely to have positively impacted Goldman’s quarterly IB revenues.
The Zacks Consensus Estimate for IB fees of $1.72 billion indicates 4.2% growth from the prior quarter’s actual. We anticipate an IB income of $1.71 billion.
Net Interest Income (NII): A stabilizing macroeconomic backdrop, along with the expectations of the Fed easing interest rates going forward, is likely to have offered some support to the lending scenario in the quarter. Notably, the demand for commercial and industrial loans, and real estate loans, specifically commercial real estate loans, improved from the fourth-quarter 2023 end, per the Fed’s latest data. Moreover, consumer lending showed signs of improvement. Hence, loan growth for Goldman is likely to have been decent.
Also, while the Fed paused interest rate hikes in first-quarter 2024, interest rates remained at a 22-year high of 5.25-5.5%. Though such high interest rates are likely to have increased funding costs to some extent, the bank’s decent loan demand during the quarter is expected to have positively impacted NII growth.
The Zacks Consensus Estimate for NII of $1.64 billion indicates a 22% increase from the prior quarter’s reported figure. We project a NII of $1.39 billion.
Expenses: Goldman’s investments in technology and market development expenses for business expansion are anticipated to have led to a rise in costs in the to-be-reported quarter. Nonetheless, employee reductions are expected to have helped reduce payroll and non-compensation expenses. We estimate quarterly expenses to increase 7.4% on a sequential basis to $9.12 billion.
What Our Model Predicts
Our proven model shows that Goldman has the right combination of two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for Goldman is +1.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: Goldman currently carries a Zacks Rank #3.
The consensus estimate for first-quarter earnings is pegged at $8.66 per share, declining marginally over the past week. Also, it indicates a decrease of 1.5% from the prior-year level.
The consensus estimate for quarterly revenues of $11 billion indicates 3.4% growth from the prior-year quarter's actual.
The Zacks Consensus Estimate for first-quarter 2024 revenues is pegged at $12.89 billion, implying a rise of 5.5% from that reported a year ago.
Other Stocks That Warrant a Look
Here are a couple of other bank stocks that you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat this time around:
Truist Financial (TFC - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.83%.
TFC’s quarterly earnings estimates have been unchanged at 78 cents over the past month.
Fifth Third Bancorp (FITB - Free Report) is scheduled to release first-quarter 2024 earnings on Apr 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.89%. You can see the complete list of today’s Zacks #1 Rank stocks here.
FITB’s quarterly earnings estimates have been marginally revised upward over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.