Balanced View on Goldman - Analyst Blog

On Jun 9, 2014, we issued an updated research report on The Goldman Sachs Group, Inc. GS. The company reported decent first-quarter 2014 results in April. With the fall in revenues, on the whole disciplined expense management was reflected. Moreover, Federal Reserve's approval of its revised 2014 capital plan depicts financial stability.

Following the slump in total net revenues, Goldman's first-quarter 2014 earnings per share came in at $4.02, significantly below the year-ago figure of $4.29. However, it surpassed the Zacks Consensus Estimate of $3.43. The company's robust financial advisory revenues and steady capital deployment activities were the positives.

In first-quarter 2014, the company repurchased shares worth $1.72 billion and paid $264 million as common stock dividends. Moreover in Oct 2013, Goldman's board of directors announced a 10% hike in the quarterly common stock dividend. Such a shareholder-friendly approach is expected to act as a catalyst for the stock.

Goldman has outpaced the Zacks Consensus Estimate in the last four quarters, with an average beat of 19.03%.

However, during first-quarter 2014, Investment Banking operated in an environment generally characterized by the ongoing macroeconomic concerns with adverse weather conditions and weak business fixed investment in the U.S. If macroeconomic concerns persist and result in lower levels of client activity, net revenues in Investment Banking would likely be negatively impacted.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include absence of a credible improvement in fixed-income revenues and the prevailing stringent regulatory landscape.

Strong fundamentals have triggered an upward revision in the Zacks Consensus Estimates, as analysts become more bullish on the stock's future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that increased 3.3% to $15.92 for 2014 and jumped 1.3% to $16.99 per share for 2015, over the past 60 days.

Goldman currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Better-ranked stocks in the same sector worth considering include Arlington Asset Investment Corp. AI and Piper Jaffray Companies PJC with a Zacks Rank #1 (Strong Buy), while JMP Group Inc. JMP carries a Zacks Rank #2 (Buy).

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