Goldman Sachs Q4 preview: Where next for GS stock?

When will Goldman Sachs release Q4 earnings?

Goldman Sachs is scheduled to publish fourth quarter earnings before the opening bell on Tuesday January 18.

Goldman Sachs Q4 earnings preview: what to expect from the results

Wall Street forecasts the bank will report a rise in fourth quarter revenue to $12.03 billion from $11.74 billion the year before. At the bottom-line, analysts expect quarterly adjusted EPS to drop to $11.76 from $12.08. Goldman Sachs has beaten revenue expectations every quarter over the last two years, while EPS has come in better-than-expected most of the time.

The bank’s Investment Banking division is expected to deliver the strongest performance considering Goldman’s leadership within the advisory and IPO market, with analysts forecasting 22% revenue growth in the quarter. Notably, Goldman Sachs said this week that it expected the explosion in global dealmaking seen last year is expected to continue into 2022 and forecast global M&A volumes will rise 6% in 2022, with the US and Europe to grow by 7% and Asia by just 3%. It said its advisor’s backlog is ‘at or near’ all-time highs, providing a solid pipeline for completions going forward to help support revenues in the initial months of the new year.

Consumer & Wealth Management is the other division analysts anticipate will deliver a strong performance with the consensus pointing toward 19% revenue growth versus last year.

The growth in other divisions should help counter an expected 22% drop in revenue from its Asset Management unit as it comes up against tough comparatives from last year. Meanwhile, revenue from its Global Markets division is set to remain flat as a 3.0% rise in income from equities counters a 3.8% drop from fixed-income.

Operating costs are expected to see a sizeable increase to $6.4 billion from just $5.9 billion last year, although the amount of provisions being made for credit losses is forecast to fall to $215 million from $293 million. Rising costs are proving to be a headwind for the wider industry and investors will be keen to see how Goldman Sachs has managed to keep them in check in order to get a sense of what to expect in terms of profitability in 2022, especially as the interest rate hikes pencilled in this year will boost earnings across the sector.

With this in mind, analysts are likely to be keeping a close eye on the bank’s progress towards its medium-term financial targets, including its plans to generate a return on equity of 13%, a return on tangible equity of 14%, an efficiency ratio of 60% and a CET1 ratio of 13.0% to 13.5% by 2023. Those goals were launched soon after 2019 was wrapped-up, when it delivered ROE of 10%, an efficiency ratio of 68.1% and a CET1 ratio of 13.3%.

Where next for GS stock?

Goldman Sachs shares have been in consolidation mode in the run-up to its fourth quarter earnings, which could act as the trigger needed for the stock to make a potential breakout. A positive set of results and/or outlook could push the stock toward the year-to-date high of $412.66 which, if breached, opens the door to the all-time high of $426.79 hit in early November.

The share price has recently slipped below both the 50-day sma and 100-day sma and any disappointment could see it target the 200-day sma at $381.95. Beyond that, shares could tumble toward $366, the six-month low hit on December 20. The RSI has recently slipped into bearish territory, building on the bearish signal that emerged when the 50-day sma recently crossed over the 100-day sma, and there has been a larger rise in volumes ahead of this set of quarterly earnings compared to the last batch back in October.

(Source: Eikon) 

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