Goldman Sachs Preview: Setting the Tone
GOLDMAN SACHS (GS)
One of two major independent investment banks left standing in the U.S.
Reports Q3 earnings Tuesday 9/16 at approx. 830a ET. Conference call at 11a ET.
WHAT WILL MOVE THE STOCK:
ARE THERE BIG WRITEDOWNS? - Goldman Sachs has consistently answered this question with a big no. But with rival i-banks falling left and right, the question keeps getting asked.
HOW MUCH CAPITAL? - Some key internal stats will be watched just as carefully as top- and bottom-line performance. Briefing.com points out:
- Tier 1 ratio (was 10.8% last quarter)
- Residential mortgages ($15 billion in Q2, down from $19 billion in Q1)
- Commercial loans ($17 billion in Q2, down from $19.5 billion in Q1)
- Legacy loans ($14 billion in Q2, down from $52 billion in Q1) and
- Level III ratio (7% of assets in Q2)
MANAGING EXPECTATIONS - Despite all the bad news investors should remember that Goldman is an expert at managing expectations (down) and then beating consensus estimates. The EPS estimate for Goldman has been cut in half in the last month. However, the firm has met or beat expectations for 11 straight quarters.
STILL THE SMARTEST IN THE ROOM? - Did Goldman make some smart bets with its own account in this volatile market? Bond fund PIMCO racked up multi-billion dollar gains on its bets on Fannie Mae and Freddie Mac, so it's not impossible. On the flip side: did Goldman get smacked by any big trading losses? Did Goldman bet right on the big drop in oil prices? What about other commodity that took a fall last quarter?
CAN GOLDMAN MAKE MONEY GOING FORWARD? Leverage is turning into a four-letter word. As investors' tolerance for high leverage ratios continues to shrink, will Goldman be able to maintain and eventually grow profits?
TECHNICALS NOT TOO PRETTY - On Monday, Goldman shares fell past their March lows to levels not seen since January 2006. The stock rallied in the last hour of trading, but still finished down 12% on the day.
Q3 EPS down 71% to $1.71, revenues down 49% to $6.231 billion
Q4 EPS down 42% to $4.09, revenues down 23% to $8.309 billion
FY 08 EPS down 43% to $14.03, revenues down 29% to $32.650 billion
Source: Thomson Reuters
*All estimates are current as of 9/15 and subject to change.*
THE FALL - Goldman shares are down about 42% from all-time intraday high on Oct. 31st, 2007 of $250.70 or down 41% from closing high of $247.92 on same day.
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