Goldman Sachs' Reduced Dividend On Preferred Stock Should Offset Top-Line Pressure

Goldman Sachs Group Inc GS is expected to report its third quarter numbers on October 18 and Barclays cut its earnings estimates, albeit above consensus.

Analyst Jason Goldberg trimmed his third quarter EPS view by $0.15 to $4.03, although still above consensus of $3.80, as he expects “higher DCM fees and a lower preferred dividend to be more than offset by higher employee expense and lower M&A fees.”

Goldberg projects revenues to increase 11 percent year-over-year, but anticipates expenses to rise 14 percent.

“Relative to 2Q16, we expect results to evidence lower investment banking fees, lower institutional client services (FICC & equities), higher I&L revenues (higher public markets), and increased investment management fees (AUM value higher),” Goldberg wrote in a note.

Further, Goldberg now expects continued upward pressure on comp ratio due to lower revenue backdrop. The comp ratio increased from 36.8 percent in 2014 to 37.5 percent in 2015.

In addition, the analyst expects GS's preferred dividend to go about $0 in the third quarter versus $188 million in the second quarter 2016, following the tendering of its outstanding 5.793 percent preferred security at a discount in August.

According to Goldberg, investors should focus on the outlook of pipeline health, comp ratio, update on upcoming first online lending product and any other new expense programs.

The analyst has an Equal-Weight rating and $210 price target on the stock, which is down 1.58 percent to $168.34.