On Aug 30, 2013, we maintained our long-term recommendation on The Goldman Sachs Group, Inc. (GS) at Neutral based on its well-managed global franchise, strong capital base and recent investments. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.
Why Neutral?
Goldman reported its second-quarter 2013 earnings per share of $3.70, significantly surpassing the Zacks Consensus Estimate of $2.81. Moreover, reported earnings outpaced the prior-year quarter earnings of $1.78 per share.
Amid challenging global markets, better-than-expected results were driven by Goldman’s record revenues with an elevation in client activity. Moreover, the company’s strong capital position was a positive. However, increased operating expenses reflect undisciplined expense management.
As a significant capital market player, Goldman could benefit from the material growth of the global markets. This was reflected in the second-quarter 2013 results, which improved primarily due to buoyancy in the capital markets. Management’s preference for organic growth over acquisitions will be beneficial with respect to cost and execution risk, over the long term.
However, Goldman’s investment banking revenues reflected an operating environment generally characterized by continued macroeconomic concerns in second-quarter 2013, although there were positive developments in the U.S. economy. If macroeconomic concerns continue and result in lower levels of client activity, investment banking revenues of the bank are likely to be adversely affected.
For Goldman, the Zacks Consensus Estimate for 2013 jumped 8.1% to $15.53 per share, over the last 60 days. For 2014, the Zacks Consensus Estimate advanced 4.2% to $15.62, over the same time frame. Hence, Goldman carries a Zacks Rank #2 (Buy).
Other Major Banks to Consider
Some other major banks that are worth considering include BankUnited, Inc. (BKU) with a Zacks Rank #1 (Strong Buy), while Wells Fargo & Company (WFC) and The PNC Financial Services Group, Inc. (PNC), carry a Zacks Rank #2 (Buy).
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