Calling Goldman Sachs (NYSE:GS) latest win “massive” is actually almost underselling it. The numbers the company put up were plainly amazing, with wins on every front and records being broken. Is it time to put a little extra investment into the company that's made such impressive hits, or will investors find themselves buying near the top?
The Numbers Drop Jaws All Over the Market
The company managed to bring in a whopping $3.48 billion for the quarter, which represents an adjusted per-share earnings figure of $9.68 per share. Given that Refinitiv consensus was $5.57—which by itself would have been a dazzling win objectively—the win is only that much better.
Looking at the breakdown across different markets within Goldman Sachs' operations gave better insight into just how that incredible final figure was reached. The global markets division led the way, pulling in $4.55 billion in revenue by itself. The fixed income, currency and commodities group gained nearly half—49% over the same time last year—to hit $2.5 billion alone. That accounted for 23% of the company's total revenue for the quarter. Asset management posted at 71% gain in net revenue, up to $2.77 billion. Equities revenue saw huge gains, up a comparatively modest 10% to hit $2.05 billion by itself. Even the investment banking operations took on gains, up 7% against the same time last year to hit $1.97 billion.
Preparing for Future Turnaround and Making Analysts Happy
Perhaps the best part of this incredible spate of news is that Goldman Sachs is actually using this as an opportunity to prepare for future downturns in the field. While things are certainly recovering—Goldman Sachs noted that the “operating environment” continued to recover from the hit it took from COVID-19, and “...monetary and fiscal policy remained accommodative”—Goldman Sachs is preparing some backup plans for worst-case scenarios. The company expanded its allowance for credit losses, adding on another $278 million to inflate the total to $4.33 billion, which means that it should be minimally impacted by even the most serious hits to the overall credit market.
Analysts, meanwhile, are over the moon. Our latest research shows that the consensus price target for Goldman Sachs is up from even just 30 days ago, going from $243.95 to $247.50. The price target has been climbing steadily for the last six months now, and that's just the start. The consensus rating for the company has been a “buy” for the last six months as well, and that's also been improving. A month ago, the company had seven “hold” ratings and 14 “buy” ratings. Today, there are only six willing to commit to a “hold” figure and 15 that espouse a “buy” rating.
October in general was a good month for Goldman Sachs ratings; both JMP Securities and Morgan Stanley boosted their price targets on the company, although the Royal Bank of Canada maintained its “neutral” rating on the company, putting it squarely in that “hold” minority.
Some Potential Troubles Afoot
Goldman Sachs had an amazing quarter, and nothing can take that away from the company. However, not all is immediately well within the company; reports suggest that management at Goldman Sachs was spotted reconsidering some of its earlier-established financial targets for the year. The reports note that the coronavirus has hit some of the bank's fundamental business model elements, which, when established back in January, called for the company to boost returns on equity and lower costs. This in turn called for Goldman Sachs to push then-current lines of business like wealth management harder, and improving figures in the consumer lending sector, which back in January was a comparatively new submarket. With the pandemic putting a bit of a hurt on consumer lending for a good while, and unemployment numbers starting to trend upward a bit, these are looking less like total market winners and more like potential areas of struggle.
The good news is that those old methods are getting a bit of a comeback. Sure, they're not what they once were, but we're going into the holiday shopping season. That commonly calls for at least some increase in consumer lending, though this time around, the increase may not be quite so pronounced as in the past. We've been seeing great gains in homebuying and homebuilding, though, especially as urbanites look to abandon the city for the quieter countryside.
Goldman Sachs' business model may not look quite as bright as it did at the start of the year, but the company seems to have made some allowances to accommodate. Perhaps a few more are required to fully meet the conditions of the day, but there's still a lot of room for the company to succeed and keep the share price trending up.
Companies in This Article:
