Bulls and Bears Battle Over Goldman Sachs (GS)

Nomura's Steven Chubak recognizes a "solid" beat from Godlman Sachs, but is not ignoring a continued weak spot with FICC.


Goldman Sachs (NYSE:GS) turned over a nice beat for its first quarter print for the year, but Nomura analyst Steven Chubak recognizes less-than-stellar holes peeking through that keep him on the sidelines. Not only is Chubak sidelined, but he braces for a bull vs. bear argument to “ignite” following these earnings- even with revenue soaring 38% year-over-year to $2.31 billion, far surpassing consensus expectations of $1.92 billion.

On back of the earnings show, the analyst reiterates a Neutral rating on GS stock with a $246 price target, which implies a 3% downside from current levels. (To watch Chubak’s track record, click here)

For the first quarter, GS posted $6.95 in EPS, clobbering the analyst’s $5.90 forecast along with consensus of $5.58. Even adjusting for a lower tax rate of -$0.08, core EPS still circles $6.87, high over the analyst’s and the Street’s expectations all the same. The beat rides robust wave of I&L, reporting +$1.02 along with strength in Equities of +$0.16, far beyond the Street. However, the analyst notes this is somewhat offset by weakness in FICC of -$0.19 coupled with more intimidating non-comps of -$0.31. Additional “deltas” Chubak spotlights include improved IBD of +$0.08, showcasing robust shows in ECM and DCM along with a rise in Inv. Management fees of +$0.15.

Overall, “This print should spark significant tug-of-war among investors. Bulls will argue core ROE of ~15% (justifying mid-to-high teens P/BV multiple, ~$300/shr. fair value), broad-based revenue strength, and balance sheet expansion (without meaningfully compromising capital ratios). Bears will cite continued FICC underperformance and ongoing reliance on lower quality revenue sources to support positive earnings surprises (i.e., Equity / Debt I&L, incentive income). While GS results did not overly impress us and some areas of strength are arguably lower quality, we also recognize that the trading businesses appear to be on more solid footing, with greater resiliency in IBD results as well. With results from peers for the most part ‘good, but not great’ this earnings season, we believe GS is a relative standout so far, with shares / cons. likely heading higher,” Chubak surmises.

TipRanks showcases GS as a banking giant Wall Street likes, with 4 out of 6 analysts in the last 3 months betting bullish and just 2 playing it safe on the sidelines. With a return potential of nearly 15%, the stock’s consensus target price stands at $292.80.