Goldman Sachs Group (GS) reported stronger-than-expected Q2 results, topping both earnings and revenue estimates. The beat was primarily driven by strong performances across its Investment Banking and Asset Management businesses and lower operating expenses.
Shares of the investment banking giant have gained 76% over the past year. However, despite the upbeat results, Goldman shares were down 1.2% on July 13 to close at $375.98. (See GS stock charts on TipRanks)
The company reported adjusted earnings of $15.02 per share, beating analysts’ expectations of $10.23 per share. Revenues of $15.39 billion exceeded the consensus estimate of $12.17 billion.
Notably, earnings per share were much higher compared to EPS of $0.53 in the prior-year period. Moreover, net revenues grew 16% year-over-year.
Investment Banking revenues were $3.6 billion in the quarter, up 36% year-over-year, driven by strong performances in the Financial Advisory and Corporate Lending businesses.
The Asset Management and Consumer and Wealth Management divisions recorded 144% and 28% jumps, respectively. However, Global Markets revenues came in at $4.9 billion, down 32% versus the prior-year quarter.
Furthermore, Goldman’s total operating expenses decreased 17% year-over-year and reflected significantly lower provisions for legal proceedings during the quarter, offset by higher compensation and benefits.
Goldman said that it retained its #1 ranking in global announced and completed mergers and acquisitions, global equity and equity-related offerings, and common stock offerings including IPOs year-to-date.
The company increased its quarterly dividend by 60% to $2 per share, payable from the third quarter of 2021.
Goldman CEO David M. Solomon commented, “Our second-quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities.”
He added, “While the economic recovery is underway, our clients and communities still face challenges in overcoming the pandemic.”
Following the results announcement, Oppenheimer analyst Chris Kotowski assigned a Buy rating to the stock with the price target of $493 (31.1% upside potential on the stock.)
Kotowski commented, “The only disappointment in the quarter was that there was only $1.0B of share repurchases versus our $3.2B estimate. This seems largely related to a 6% linked-quarter increase in RWAs.”
He further added, “Goldman has always said that it would use its capital first to support customer activity, and then use the excess for buybacks. Here we see that GS is good to its word on this, and of course we would rather see earnings like this than buybacks. However, we expect that in more slack times, the RWAs might come down, and share repurchases go up.”
Consensus among analysts is a Strong Buy based on 12 Buys and 3 Holds. The average Goldman Sachs price target of $419.13 implies 11.5% upside potential to current levels.
Goldman Sachs scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.