Goldman Sachs Group Inc (GS)

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Why Is Goldman (GS) Down 2.9% Since Last Earnings Report?
By: Zacks Equity Research | August 14, 2020

Strong Capital Position

Goldman displayed a robust capital position in the reported quarter. As of Jun 30, 2020, the company’s Common Equity Tier 1 ratio was 12.4% under the Basel III Advanced Approach, highlighting valid transitional provisions. The figure was up from the prior quarter’s 12.3%.

The company’s supplementary leverage ratio, on a fully phased-in basis, was 6.7% at the end of the April-June quarter, up from the prior-quarter figure of 5.9%.

Return on average common shareholders’ equity, on an annualized basis, was 11.1% in the quarter.

Goldman continued to optimize the digital consumer deposit platforms. Notably, consumer deposits escalated a record $20 billion in the reported quarter to $92 billion.

Goldman initiated its transaction banking business in the U.S. providing deposit-taking, payments, liquidity management, and escrow services. During the quarter, deposits on the platform surged $16 billion to $25 billion.

Outlook

In the second half of 2020, Goldman expects a potential pickup in M&A activity, both from companies coming from a position of strength, as well as those challenged by the environment. Dislocated asset prices are likely to drive those opportunities, as significant amount of private capital will be available for deployment amid macro and political uncertainties.

While the company’s balance sheet is modestly asset sensitive, given the mix of high turnover or floating rate assets, and hedge floating rate liabilities, if interest rates remain stable, management expects NII to gradually expand over time on consumer deposits repricing.

Given the challenging operating environment, management is re-examining all its forward spending and investment plans to ensure the best use of resources. Consistent with the historical focus on expense discipline and the emphasis on cost control at Investor Day, management will assess the timing, magnitude and pace of certain expenses and investments. Importantly, it continues to pursue medium-term efficiency target. To that end, management expects to realize the effect of planned reductions in non-compensation expenses more significantly through the second half of this year.

For the next few years, Goldman expects tax rate to be 21%.

Medium-Term Financial Targets

Return on Equity is expected to be greater than 13%, while return on tangible equity to be more than 14%. Efficiency ratio is expected to be around 60%. CET1 ratio is expected in the range of 13-13.5%.

Growing and spending business growth worth $2-$3 billion. New initiatives spend worth $1-2 billion. Funding optimization is expected to be $1 billion. Expense efficiency savings expected to be $1.3 billion.

Management expects transaction banking revenues worth $1 billion and deposits worth $50 billion in more than five years horizon.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.31% due to these changes.

VGM Scores

At this time, Goldman has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in...

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