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Trading to Aid Goldman (GS) Q1 Earnings Amid Coronavirus Scare
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Increase in client activities and unexpected rise in market volatility on the coronavirus scare are likely to have aided trading revenues (both equity and fixed-income), driving Goldman Sachs’ (GS - Free Report) first-quarter 2020 earnings, slated for release on Apr 15. The global economic slowdown, the Federal Reserve’s accommodative stance and a number of activities in the later part of the quarter, impacting the economy, kept tickling trading counters resulting in volatile market performance.
Investors also moved toward safe havens like Treasury bonds and other commodities like gold, on uncertain markets amid coronavirus crisis. Hence, Goldman’s equity and fixed income-market revenues are expected to have improved in the to-be-reported quarter.
However, Goldman’s asset management business might have performed dismally in the quarter. Outflows from the asset-management business might be recorded on market losses. Significant declines in the prices of asset values are also likely to have hurt asset-management fees.
Other Factors at Play
Soft Investment Banking Fees: Global M&A activity was significantly hampered during the first quarter amid the coronavirus outbreak. Therefore, this might have had an adverse impact on Goldman’s advisory fees.
Weak equity markets resulted in a decline in follow-up equity issuances, while IPOs flourished during this period. Further, bond issuance volumes were strong, while debt issuances were muted as loan demand was soft. Hence, Goldman’s equity underwriting fees and debt origination fees (accounting for almost 55% of total investment banking fees) might have been affected, with its commendable position in the market likely to have offered some respite.
Muted Net Interest Income Growth: The Fed slashed interest rates to near zero this March, in order to shield the U.S. economy from the coronavirus-related mayhem. This is likely to have substantially hurt net interest margin and net interest income of the bank. However, low deposit costs might have been an offsetting factor for margins.
Per the Fed’s latest data, the loan balance is likely to have been high on a sequential basis in the March-end quarter, supported by rise in commercial and industrial (C&I), real estate and consumer loans in the first two months of the quarter. However, a slight decline in demand for consumer loans in March due to the virus outbreak and soft demand for corporate loans as an uncertain economic environment resulted in lower business activities, leading to a decline in new investments, might have played spoilsport.
Therefore, a soft lending scenario is predicted to have curtailed growth in net interest income to an extent.
Prudent Expense Management: Goldman is focused on enhancing its efficiency, while maintaining a strong franchise and investing in new opportunities. As the majority of unnecessary expenses have already been slashed by the bank, expense reduction is unlikely to have provided much support. Additionally, there were no major outflows related to legal settlements during the January-March period that might have hurt Goldman’s earnings unusually.
Here is what our quantitative model predicts:
Goldman does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is 0.00%.
Zacks Rank: Goldman currently carries a Zacks Rank of 5 (Strong Sell), which decreases the predictive power of ESP.
The Zacks Consensus Estimate for earnings of $3.49 reflects a 38.9% plunge on a year-over-year basis. The Zacks Consensus Estimate for sales of $6.8 billion indicates a 23.4% decline from the prior-year quarter.
The Goldman Sachs Group, Inc. Price and EPS Surprise
Here are a few stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.
SB ONE BANCORP is likely to release earnings figures on Apr 28. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
The Earnings ESP for Carolina Financial Corporation is +1.43% and the stock carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers on Apr 22.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Trading to Aid Goldman (GS) Q1 Earnings Amid Coronavirus Scare
Increase in client activities and unexpected rise in market volatility on the coronavirus scare are likely to have aided trading revenues (both equity and fixed-income), driving Goldman Sachs’ (GS - Free Report) first-quarter 2020 earnings, slated for release on Apr 15. The global economic slowdown, the Federal Reserve’s accommodative stance and a number of activities in the later part of the quarter, impacting the economy, kept tickling trading counters resulting in volatile market performance.
Investors also moved toward safe havens like Treasury bonds and other commodities like gold, on uncertain markets amid coronavirus crisis. Hence, Goldman’s equity and fixed income-market revenues are expected to have improved in the to-be-reported quarter.
However, Goldman’s asset management business might have performed dismally in the quarter. Outflows from the asset-management business might be recorded on market losses. Significant declines in the prices of asset values are also likely to have hurt asset-management fees.
Other Factors at Play
Soft Investment Banking Fees: Global M&A activity was significantly hampered during the first quarter amid the coronavirus outbreak. Therefore, this might have had an adverse impact on Goldman’s advisory fees.
Weak equity markets resulted in a decline in follow-up equity issuances, while IPOs flourished during this period. Further, bond issuance volumes were strong, while debt issuances were muted as loan demand was soft. Hence, Goldman’s equity underwriting fees and debt origination fees (accounting for almost 55% of total investment banking fees) might have been affected, with its commendable position in the market likely to have offered some respite.
Muted Net Interest Income Growth: The Fed slashed interest rates to near zero this March, in order to shield the U.S. economy from the coronavirus-related mayhem. This is likely to have substantially hurt net interest margin and net interest income of the bank. However, low deposit costs might have been an offsetting factor for margins.
Per the Fed’s latest data, the loan balance is likely to have been high on a sequential basis in the March-end quarter, supported by rise in commercial and industrial (C&I), real estate and consumer loans in the first two months of the quarter. However, a slight decline in demand for consumer loans in March due to the virus outbreak and soft demand for corporate loans as an uncertain economic environment resulted in lower business activities, leading to a decline in new investments, might have played spoilsport.
Therefore, a soft lending scenario is predicted to have curtailed growth in net interest income to an extent.
Prudent Expense Management: Goldman is focused on enhancing its efficiency, while maintaining a strong franchise and investing in new opportunities. As the majority of unnecessary expenses have already been slashed by the bank, expense reduction is unlikely to have provided much support. Additionally, there were no major outflows related to legal settlements during the January-March period that might have hurt Goldman’s earnings unusually.
Here is what our quantitative model predicts:
Goldman does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is 0.00%.
Zacks Rank: Goldman currently carries a Zacks Rank of 5 (Strong Sell), which decreases the predictive power of ESP.
The Zacks Consensus Estimate for earnings of $3.49 reflects a 38.9% plunge on a year-over-year basis. The Zacks Consensus Estimate for sales of $6.8 billion indicates a 23.4% decline from the prior-year quarter.
The Goldman Sachs Group, Inc. Price and EPS Surprise
The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote
Stocks That Warrant a Look
Here are a few stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.
BCB Bancorp, Inc. (NJ) (BCBP - Free Report) is expected to release results on Apr 16. The company has an Earnings ESP of +4.17% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SB ONE BANCORP is likely to release earnings figures on Apr 28. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.56%.
The Earnings ESP for Carolina Financial Corporation is +1.43% and the stock carries a Zacks Rank of 3, currently. The company is expected to report quarterly numbers on Apr 22.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>