Goldman Sachs earnings beat headline forecasts, but results ‘did not overly impress’

Goldman Sachs earnings beat headline forecasts, but the results weren’t overly impressive, Nomura said in a note on Tuesday.

It noted that Goldman reported first-quarter earnings per share (EPS) of US$6.95, compared with Nomura’s forecast of US$5.90 and consensus expectations for US$5.58. The beat was primarily driven by higher I&L and equities, offset by weaker FICC and higher non-comps, Nomura said in the note which was headlined, “Sorry Fabio, these results contain butter.”

That’s a reference to late 1990s TV advertisements, which got a reboot a couple years ago, starring romance-novel cover-model Fabio for I Can’t Believe It’s Not Butter.

Nomura said the earnings may spur a “significant tug-of-war” between bulls and bears.

Bulls may point to core return on equity (ROE) of around 15 percent, justifying the stock’s mid-to-high teens price-to-book-value multiple and around US$300 a share fair value, as well as broad-based revenue strength and balance sheet expansion, the note said.

But the note also cited points for the bears, such as continued FICC underperformance and reliance on lower quality revenue sources, such as equity, debt I&L and 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,” Nomura said. “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/consensus likely heading higher.”

It kept a Neutral call with US$246 target price.

Although Goldman shares initially opened higher, by 11:10 P.M. SGT, they were trading down 1.19 percent at US$254.80.