Goldman Sachs Earned $20.98 a Share in One Quarter, So Why Has the Stock Slid Since July?

Key Stats for Goldman Sachs Stock

• Market Cap: around $283 billion
• Forward 2-Year Revenue Growth (CAGR): around 12%
• Forward 2-Year EPS Growth (CAGR): around 20%
• Dividend Yield: around 2%
• Q2 Return on Equity: 23.5%

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A Record Quarter Meets a Cooler Third-Quarter Outlook

Goldman Sachs (GS) reported record second-quarter revenue and earnings per share in July, with revenue of $20.34 billion (up 39% from a year earlier), net earnings of $6.63 billion and EPS of $20.98, which translated into a 23.5% return on equity.

Trading led the way, as equities revenue reached a record $7.4 billion, well ahead of the $6.3 billion Morgan Stanley reported for the same period. Investment banking fees added $3.4 billion, and Asset and Wealth Management revenue grew 20% to $4.6 billion, with assets under supervision above $4 trillion.

Wall Street was expecting about $14.50 a share, so the result beat consensus by roughly 45%, and revenue topped estimates by 24%.

The stock rose 9% on the day, its biggest post-earnings move in the last five quarters. TIKR’s Beats and Misses table below shows that Goldman has topped EPS estimates in each of those quarters, with the latest beat far larger than the rest.

The stock has slid since July, and the pressure built in mid-September as bank executives began talking about the third quarter.

Bank of America (BAC) CEO Brian Moynihan told a Barclays conference that his bank’s investment banking fees would likely fall more than 10% from a year earlier, and Goldman’s David Solomon followed on September 16 by flagging softer fixed-income trading and higher costs, although equities remained very strong.

The shares now sit roughly 19% below their July high, and third-quarter results arrive on October 13.

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What the Model Says After the Pullback

Goldman also returned capital, repurchasing $4 billion of stock in the quarter (4.1 million shares) and raising its quarterly dividend to $5.00. The dividend is 25% higher than a year ago and works out to a yield of around 2%.

TIKR’s valuation model, shown below, puts the mid case at around $1,160 by the end of 2030, which works out to about 24% in total or roughly 5% a year, well below the 18% a year the stock has returned over the past five years.

The model assumes revenue growth of around 3% a year, compared with forward consensus of around 12% over the next two years, so it builds in a sharp slowdown.

The model also holds net margin near 29%, compared with 25% over the last year, which means the lower return comes mostly from slower growth and a slightly lower multiple. The low case, which runs to 2034, returns only around 1% a year, while the high case reaches around 6%.

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Should You Buy GS Stock?

The bull case is that Goldman has beaten EPS estimates five quarters in a row, earns a 23.5% return on equity, and is building a wealth business with more than $4 trillion in assets, while consensus still calls for around 20% annual EPS growth over the next two years and the dividend has risen 25% in a year.

The bear case is that capital markets activity is cyclical, and executives at Bank of America and Goldman itself have already pointed to a softer third quarter with costs running higher.

With the model showing only around 5% a year, a cooler report on October 13 could matter more than last quarter’s record.

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!