Zhitong Finance APP learned that Goldman Sachs (GS.US) will announce its third-quarter financial report for 20 years before the opening on Wednesday, October 14. According to Refinitiv's forecast, Goldman Sachs' Q3 earnings per share was $5.22, with revenue of $9.25 billion, with expected year-on-year growth of 9% and 11%, respectively.
Goldman Sachs' second quarter financial report released in mid-July 2020 showed that the company's earnings per share was $6.26, higher than IBES/Refinitiv's expected earnings per share of $3.13, and revenue was $13.3 billion, higher than the market's expectations of $9.76 billion. Goldman Sachs Q2 net profit increased by 41% year-on-year, and earnings per share increased by 8%.
's second-quarter results reflect the results announced by investment banks in the late 1990s and early this century with strong markets.
Fixed Income Division revenue increased by 120% year-on-year, and stock sector revenue increased by 60% year-on-year. Fixed Income was driven mainly by the explosive growth of its corporate bond issuance after the announcement of various Fed liquidity plans in late March and early April 2020. The impact of
repurchase
Take a look at Goldman Sachs’ current expected valuation, which is currently valued at $26.57 for 2022 (this valuation has been rising since the summer), and if a reasonable 10-fold price-to-earnings ratio is given, the stock’s reasonable valuation will be $265.
The stock's high on January 22, 2020 was $250.46, so there is no reason the stock cannot reach that price again based on forecast trends for 2021 and 2022.
However, for companies that are held for their clients, they have conducted a large amount of basic valuations of their shares. The Excel table above shows that in any quarter of the past five years, the total share buybacks in the "last 12 months" ranged from 4% to 10% of the market capitalization of any quarter.
Now, the repo is temporarily stopped.
The above chart is two charts in JPMorgan's market guide for the quarter, and you can see how the "repurchase yield" of the financial sector has reached its highest among all 11 sectors of the S&P 500.
This is a powerful earnings per share catalyst that has temporarily disappeared.
As of the third quarter of 2020, corporate bond issuance in the U.S. market was close to $1.5 trillion (I had hoped to confirm with the fixed income trading department of Schwab , but failed to confirm), which is obviously a record number. This includes all debt, not just high ratings and high yield corporate debt. Credit rating agency Fitch released some bond issuance data in June, noting that the size of investment-grade bonds in 2020 was $584 billion, which is certainly surpassing the 2017 record of $644 billion. The emergence of
SPAC and its impact on IPOs are a very important issue, because SPAC has become a very easy way to get companies listed without the experience of underwriters such as Goldman Sachs or Morgan Stanley .
Palantir even chose to go public directly, which also ruled out the impact of underwriters.
The question now is whether this will cause permanent "damage" to investment bank-led IPOs.
Look at Goldman Sachs’ ever-changing EPS and revenue expectations:
Asset Management
With the joining forces of Schwab Financial (SCHW.US) and Ameritrade (AMTD.US), while Morgan Stanley acquired E-Trade, Goldman Sachs acquired Folio this summer, which seems to be a response to the third-party RIA custody market; however, given Goldman Sachs’ reputation and dominance in the banking and trading sectors, has the company been neglecting potential growth in the asset management sector for too long and has lost the opportunity to be a dominant player.
As White-Shoe companies in the 1980s, 1990s and 2000s gave way to RIA giants like Schwab , BlackRock and third-party custodial markets, their longer-term growth prospects have become blurred. In the second quarter of 2020, Goldman Sachs' revenue increased by 41% year-on-year, but its earnings per share increased by only 9%, which was obviously hindered by no buybacks. But this also means that Goldman Sachs is a bit too much in terms of spending.
Goldman Sachs entered this market late (third party), but with Folio, it had the opportunity to enter; but it seems unclear what the priority business is.
Summary
When investors view Goldman Sachs' earnings per share and earnings forecast consensus, the first thing they need to look at is the direction of earnings per share expectations. For Goldman Sachs, these numbers have been revised upward since its last earnings report in mid-July this year.
From the perspective of price-to-earnings and price-to-book ratios, the bank's share price is very cheap, but as mentioned earlier, the suspension of stock buybacks has undoubtedly suppressed a strong catalyst for the bank's giant in terms of earnings per share.
In the last few days of the third quarter, the Fed said it will continue to ban stock buybacks until the fourth quarter of 2020.
Goldman Sachs' valuation may not be realized until 2021. The first stop loss point may be the book value at a high of $220, and then the stock will eventually reach a high of $250 in January 2020.
