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Goldman Sachs Results Top Expectations. The Stock Is Rising.Goldman Sachs Results Top Expectations. The Stock Is Rising. Barron's (Online); New York Goldman Sachs Group's first-quarter earnings topped expectations as strong trading results offset a sharp decline in investment banking revenue. Goldman Sachs (ticker: GS) earned $10.76 a share in the period, down 42% from an extraordinary $18.60 a share in the quarter a year ago, but above the FactSet consensus estimate of $8.90 a share. Shares of Goldman, which have been hit along with those of its peers this year, were up 1.6% in pre-market trading to $327, but are still down 14% so far this year. The results could cheer investors because the company's earnings are running at a healthy run rate of more than $40 a share. While that is down from the nearly $60 a share in 2021, the firm is still generating healthy returns with a return on equity of 15% in the period. Revenue in the period of $12.9 billion topped the consensus estimate by about $1 billion. more bank earnings While Goldman's earnings exceeded the consensus in the first quarter, the estimates have fallen about 12% in the past month as analysts anticipated a tougher quarter for the firm. Barron's on Wednesday cited JMP Securities analyst Devin Ryan who said that investors would likely be happy with a $40-a-share run rate of profits in a tough environment for investment banking and volatile markets. Investors, he said, recognized that Goldman's blowout 2021 results likely couldn't be maintained. Goldman's first-quarter results were driven by robust results in its global markets, particularly what it calls FICC, or fixed-income, currencies, and commodities. Trading was particularly strong in currencies and commodities. Goldman is one of the leading commodity traders in the world and appears to have capitalized on robust and volatile commodity markets in the first quarter. Global markets revenue was up 4% year-over-year, to $7.9 billion, and 98% above the level in the fourth quarter. FICC revenue was up 21%, to $4.7 billion in the quarter versus the first quarter of 2021 while equity trading revenue was down 15% at $3.1 billion. Investment banking revenue was down 36% in the first quarter to $2.4 billion, driven by an 83% drop in equity underwriting revenue to $261 million as the IPO market for initial public dried up in the period. Book value rose 3% year-to-date to $293 a share. The stock now trades for just 1.1 times book value, a low valuation considering the earnings power and value of the Goldman franchise. Industry leader JPMorgan Chase fetches about 1.5 times book. Goldman got no help in the first quarter from its portfolio of $18 billion of public and private-equity investments, which were a big contributor to its 2021 results. Those investments had a loss of $367 million in the period against profits of $3.1 billion in the first quarter of 2021. This reflected tough equity market conditions in the first quarter. Goldman said "net losses in equity investments reflected significant mark-to-market net losses from investments in public equities and significantly lower net gains from investments in private equities compared with a strong prior year period." Barron's highlighted this area as one to watch in our article Wednesday given rougher conditions in the stock market. The firm reduced its compensation expense by $2 billion in the first quarter to $4.1 billion relative to the first quarter of 2021. The ratio of compensation to net revenues fell to 32% from 34% a year ago. Goldman executives have highlighted that the firm's compensation is flexible and will shift with the overall level of earnings and revenues. Goldman's headcount continued to rise, hitting 45,100 in the first quarter, up from 43,900 in the fourth quarter and 40,300 in the year-earlier period. Aside from Citigroup (C), Goldman has the lowest valuation among its peers—JP Morgan, Bank of America (BAC), and Morgan Stanley (MS)—based on book value and earnings. Goldman trades around eight times projected 2022 earnings while JP Morgan, Bank of America and Morgan Stanley trade for around 11 times. |
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