Monday, April 18, 2011

Goldman Sachs Group (NYSE: GS): Q1 Earnings Preview 2011

Goldman Sachs Group, Inc. (NYSE: GS), the fifth-biggest U.S. bank by assets, is scheduled to release its first-quarter earnings before the opening bell on Tuesday, April 19, 2011. Analysts, on average, expect the company to report earnings of $0.82 per share on revenue of $10.18 billion. In the year ago quarter, the company reported earnings of $5.59 per share on revenue of $12.78 billion.

The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide.

In the preceding fourth quarter, the New York-based company's net income was $2.39 billion, or $3.79 a share, compared to $4.95 billion, or $8.20 a share, in the year-earlier period. Revenue declined to $8.64 billion from $9.62 billion.  Analysts, on average, expected the company to report earnings of $3.76 per share on revenue of $9 billion.

Though most of the major banks had to absorb extraordinary shocks from the recession, Goldman maintained consistent profitability throughout the downturn in the economy. 

However, the company's reputation has taken a serious hit since the financial crisis. The firm's CEO, Lloyd Blankfein, has been publicly flogged by lawmakers and recently testified in an insider trading case. Fraud charges against Goldman and concerns about how tougher financial regulation (much of which was crafted in the wake of Abacus) will impact the firm, will be an overhang on the stock for a while.

Recently,  a Congressional report raised investor fears of more regulatory scrutiny on the company. Senator Carl Levin, a Democrat from Michigan who heads the  Permanent Subcommittee on Investigations, was harshly critical of Goldman during a press briefing and suggested that the company may face additional scrutiny from the Department of Justice or the U.S. Securities and Exchange Commission.

Last month, in a regulatory filing, Goldman Sachs disclosed that the company could lose as much as $3.4 billion in damages and other litigation-related matters involving securities it underwrote in the last few years for which the purchasers are now suing to recover losses or to force the firm to buy them back.

In March, the investment bank redeemed preferred stock  sold to Warren Buffett’s Berkshire Hathaway in the midst of the 2008 global financial crisis. The redemption includes a one-time preferred dividend of about $1.64 billion, which is expected to reduce Goldman's reported earnings for the first quarter by about $2.80 per share. The redemption also results in the acceleration of $24 million of preferred dividends that are payable from April 1 to the redemption date of April 18, which will reduce reported earnings for the first quarter by about $0.04 per share. Goldman had sold the preferred shares to Berkshire at the height of the financial crisis in 2008.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 8.10 and PEG ratio (5 yr expected) of 1.  In terms of stock performance, Goldman Sachs shares have lost nearly 15 percent over the past year.

Full Disclosure: None.
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