Goldman Sachs Earnings Preview: Something to Cheer About

Goldman Sachs GS, which recently was a cover feature in Barron's, is scheduled to report its third-quarter 2012 results Tuesday, October 16, before the market open. If analysts' forecasts are correct, there should be plenty for investors to cheer about in these results. Expectations Analysts on average predict that Goldman Sachs will report that revenue more than doubled year-over-year to $7.30 billion. Per-share earnings are expected to come to $2.12 for the quarter, compared with a net loss of $0.84 per share in same period of last year. The consensus EPS estimate has risen in the past 60 days from $1.97, and estimates now range from $1.49 per share to $2.75 per share. Goldman Sachs offered upside surprises of between 10 percent and 52 percent in the previous three quarters, after that larger than expected net loss in the third quarter of 2011. Back in the second quarter, Goldman Sachs reported a decline in earnings that still topped analysts' low expectations. Results were attributed to prudent expense management. The company also said its Tier 1 capital ratio and Tier 1 common ratio under Basel I improved, and assets under management climbed to $836 billion. The existing share repurchase program continued. But shares fell about five percent in the two days following the earnings release. So far, the full year forecast has EPS about 59 percent higher year-over-year and revenue up about nine percent. The Company Goldman Sachs Group is a multinational investment banking firm providing financial services primarily to institutional clients. It is an S&P 500 component with a market capitalization near $60 billion. It was founded in 1869, is headquartered in New York City, and Lloyd Blankfein has been the chairman and chief executive since May of 2006. Competitors include J.P. Morgan Chase JPM and Morgan Stanley MS. Last week, J.P. Morgan posted a record third-quarter profit due in part to a surge in mortgage refinancing. Revenue from mortgage loans jumped 29 percent. Morgan Stanley is scheduled to report third-quarter results later this week, but analysts are predicting significant declines in both EPS and revenue compared to the same period of last year. During the three months that ended in September, Goldman Sachs said it would build an in-house private bank to serve wealthy customers, avoided Justice Department charges related to the financial crisis, stopped offering two-year contracts to junior analysts, selected a new chief financial officer and settled with the SEC over pay-to-play charges. Performance The long-term EPS growth forecast is more than 12 percent, but the price-to-earnings (P/E) ratio is higher than the industry average. The company has a return on equity of only about five percent and a dividend yield of about 1.5 percent. Short interest is about two percent of the float. Eleven of 29 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares, but only three recommend selling. Their mean price target signals almost six percent potential upside. The stock is up about 26 percent year to date but still more than six percent lower than the 52-week high. The share price is above the 200-day and 50-day moving averages. Over the past six months, the stock has narrowly outperformed J.P. Morgan and Morgan Stanley, as well as the broader markets.