By Brendan Gilmartin
Overview
Goldman Sachs (GS) is scheduled to report 3Q 2011 earnings before the opening bell on Tuesday, October 18. The firm indicated it would provide a press release at 8:00 a.m. EST and host a conference call at 9:30 a.m. Please note that, in past reporting periods, Goldman Sachs reported earnings approximately 15 minutes ahead of the scheduled release time. Goldman’s results also have the potential to impact the broader financial sector as well as the broader market gauges, particularly the index futures.
Outliers & Strategy
- Key Measures:
- Earnings Per Share (EPS): Goldman Sachs typically provides a “clean” number that is comparable to \\consensus. The current Street estimate is (-$0.15) (Range: -$1.02 to $1.22) (Source: Yahoo! Finance). This would represent the 2nd quarterly loss since becoming a public company in 1999. Revenues are seen coming in at $4.59 bln, down 48.4% y/y.
- Goldman Sachs shares are now trading at 9.5x earnings, a discount to the 5-year average of 11.6x and a mere 6.8x forward profit estimates.
- At a recent $96.73, Goldman Sachs is now trading at a discount to tangible book value ($121.60), well below book value ($131.44).
- Keep an eye on the following as sympathy plays: Morgan Stanley (MS) (reports earnings on Thursday, 10/19), Jefferies (JEF), Lazard (LAZ), and Barclay’s (BCS).
Recent News
- 10/11: Citigroup lowered its 3Q EPS estimate on Goldman Sachs from $0.10 to (-$0.65), citing weakness across the trading and investment banking segment, weak equity markets, and wider credit spreads. Barron’s
- 10/03: Credit Suisse lowered its price target on Goldman Sachs from $165 to $150, based on difficult market conditions, low client risk appetite, and pullback in risky asset prices. CS expects the firm to post a loss of -$0.70 per share in the 3Q. Benzinga.com
- 09/27: Renowned banking analyst Meredith Whitney lowered her 3Q 2011 EPS estimate on Goldman Sachs to $0.31 (from $3.39) and the FY2012 estimate to $6.17 (from $11.60). CNBC
- 09/26: Goldman Sachs is considering cost cuts of up to $1.45 bln by mid-2012, due to declining earnings and weaker market conditions. The firm may also cut more than 1,000 jobs. New York Times
- 09/14: Sandler O’Neill & Partners lowered earnings estimates on Goldman Sachs due to investment-related losses, partially offset by strength in fixed-income, commodities and currencies (FICC) trading. The price target was lowered from $165 to $150.
Technical Review
Goldman Sachs shares recently dropped to levels not seen since March, 2009, succumbing to an intraday nadir of $84.27 on October 4. Since then, the shares are up more than 14%, ending the most recent session right in-line with the 20-Day SMA. From here, the next area of resistance is $100, followed by the 50-Day SMA near $105. Note that Goldman has traded below the 50-Day SMA since late July, the longest span below that threshold since the 2009 financial crisis. Should earnings disappoint more than expected, look for support just above $90, followed by the recent lows near $85. (Chart courtesy of StockCharts.com)
Summary
Goldman Sachs shares have been hit hard this year (-42.03% YTD), due to weakness in the trading and investment banking segments as a result of deteriorating economic conditions and the debt crisis sweeping through Europe. However, much of these concerns appear priced in with the shares trading at a discount to tangible book value, while maintaining a strong capital base and leadership position in investment banking and asset management. With all the negativity weighing over Goldman entering the 3Q 2011 earnings release, even a modest profit or above-consensus revenues may push the shares and the market higher.
Disclaimer: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
