Earnings Preview: Goldman Sachs
NEW YORK --Goldman Sachs Group Inc., the nation's biggest investment bank, reports fiscal first-quarter earnings on Tuesday before the opening bell. The following is a summary of key developments and analyst commentary related to the period.
OVERVIEW: The New York-based investment house is the first of three big banks that will report earnings in the next two weeks. Brokerages blew past analysts' expectations during the fourth quarter, turning in record results on a surge in acquisition activity and trading.
Goldman has reported record earnings and revenue for the past three years, but 2007 could be more difficult. The market has sustained a sharp pullback in the past few weeks, and that triggered concerns about the near-term impact on investment banks and brokerages.
Financial services stocks were among the poorest performing groups when global stock markets swooned on Feb. 27. Concern over a housing slump, and the shakeup in the subprime mortgage market are among the biggest worries. Goldman is said to have little exposure in the subprime market, while others on Wall Street deal more heavily in mortgage securities that back the loans.
The biggest boon to Goldman's earnings power will come from its acquisition and trading businesses. The company is regularly one of the world's biggest acquisition advisers, reporting a healthy backlog of deals still in the pipeline during the fourth quarter.
EXPECTATIONS: Analysts polled by Thomson Financial forecast first-quarter earnings will dip from the year-ago period to $4.90 per share on $10.69 billion in revenue.
ANALYST TAKE: In a recent note to clients, Merrill Lynch analyst Guy Moszkowski maintained his first-quarter earnings estimate for Goldman Sachs at $5.07.
He expects M&A activity to be slightly ahead of last year's first quarter and robust trading due to a typically active time of the year.
"M&A closings show continued momentum driving private equity-related debt financing," he said. "Equity underwriting is a bit slower."
STOCK PERFORMANCE: Goldman's stock at the end of the first quarter closed about flat from the conclusion of the first quarter, but is up about 41 percent from the year-ago period. Shares gave up about 8 percent after February's big market drop before it began to recover, and closed at $202.60 on Monday.
