Trading, Underwriting Business to Aid Goldman (GS) Q1 Earnings

Zacks Equity Research
·5-min read

Similar to the last reported quarter, increase in client activities and rise in market volatility are likely to have aided trading revenues (both equity and fixed-income). This, in turn, might have supported Goldman Sachs’ GS first-quarter 2021 earnings, slated to be released on Apr 14.

Prevailing concerns related to the pandemic, along with other major developments, including the optimism surrounding extensive vaccination drive and stimulus packages, led to a continued rise in market volatility in first-quarter 2021. Along with substantial volatility, client activity was strong. Thus, Goldman’s trading businesses are expected to have received significant boost in the to-be-reported quarter.

The Zacks Consensus Estimate of $3 billion for net revenues in Fixed Income, Currency and Commodities Client Execution suggests 59.6% growth from the previous quarter’s reported number. The consensus estimate of $2.5 billion for total equities revenues indicates a rise of 2.8% sequentially.

Notably, Goldman’s asset management business put up a decent performance during the quarter. Inflows from the asset management business are likely to have been recorded on market gains. Also, improvement in the prices of asset values is anticipated to have aided asset management fees.

Other Factors at Play

Impressive Investment Banking Fees: Global M&A activity was at record levels during the quarter under review as dealmakers across the globe were active during this period with rise in M&A deal value and volume. Therefore, this might have had a positive impact on Goldman’s advisory fees.

Moreover, IPO activities were impressive, and as companies tried to build liquidity to tide over the pandemic-induced crisis, there was a considerable rise in follow-up equity issuances.

Furthermore, equity market performance was strong and overall debt issuances were on an upswing, given lower interest rates. Thus, equity underwriting and debt origination fees (accounting for almost 55% of total investment banking fees) are expected to have gone up during the quarter.

The consensus estimate for investment banking fees of $2.9 billion indicates 10.9% sequential growth.

Consumer Banking Revenues: Decent consumer spending scenario on easing of lockdown measures might have favorably impacted card fees during the quarter. Also, advisory services on wealth management are anticipated to have provided some respite.

The consensus estimate for revenues of $1.6 billion suggests a marginal fall from the previous quarter’s reported number.

Low Net Interest Income: The overall lending scenario was soft during the first quarter, with weakness in commercial real estate, consumer loan and commercial and industrial activities expected to have affected interest income growth. However, low deposit costs and steepening of treasury yield curve might have been an offsetting factor.

With the interest rates near-zero level, Goldman’s net interest margin and NII are likely to have been adversely impacted.

Little Support From Cost Control Moves: Goldman is focused on enhancing efficiency, while maintaining a solid 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.

Here is what our quantitative model predicts:

Our proven model shows that Goldman has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase 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 +3.83%.

Zacks Rank: It currently flaunts a Zacks Rank #1 (Strong Buy), which further increases the predictive power of ESP.

The Zacks Consensus Estimate for earnings of $9.52 indicates a substantial rise from the year-ago reported number. Also, the consensus estimate for sales of $11.5 billion suggests 31.5% year-over-year growth.

The Goldman Sachs Group, Inc. Price and EPS Surprise

The Goldman Sachs Group, Inc. Price and EPS Surprise
The Goldman Sachs Group, Inc. Price and EPS Surprise

The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote

Other Banks Worth a Look

Here are some other 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.

JPMorgan Chase & Co. JPM is slated to report quarterly results on Apr 14. The company has an Earnings ESP of +0.33% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Citigroup C is +4.48% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Apr 15.

Wells Fargo & Company WFC is slated to report quarterly earnings on Apr 14. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +5.32%.

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