Wolfe Research keeps Peerperform rating on Goldman Sachs stock, notes mixed Q2 earnings

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On Monday, Wolfe Research maintained its Peerperform rating on Goldman Sachs (NYSE:GS) stock following the release of the company's second-quarter earnings. Goldman Sachs reported a second-quarter earnings per share (EPS) of $8.62, with an adjusted core EPS of $8.41 after excluding special items and the impact of businesses the firm intends to exit. This adjusted figure stands in contrast to Wolfe Research's estimate of $7.75 and the consensus estimate of $8.39.

The earnings beat was largely attributed to stronger-than-expected performance in trading, which contributed an additional $0.85 to the EPS. Other areas that outperformed Wolfe Research's forecasts included Platform Solutions and Asset & Wealth Management (AWM), which added $0.22 and $0.08 to the EPS, respectively.

Additionally, a lower provision for credit losses added $0.35. These gains were partially offset by lower investment banking (IB) fees, which fell short by $0.14, and higher-than-anticipated compensation and non-compensation expenses, which reduced the EPS by $0.66.

Despite the earnings surpassing Wolfe Research's estimates, the core results were more closely aligned with the broader market consensus. The performance was buoyed by what the firm described as "lower quality areas," such as credit costs, while investment banking weaknesses and expense pressures may dampen investor excitement.

Goldman Sachs' shares showed a modest pre-market increase of approximately 10 to 20 basis points at the time of the analyst's note. Wolfe Research suggested that the company's stock is likely to perform on par or slightly better than its peers.

However, the firm expressed uncertainty as to whether the results would lead to positive EPS revisions, leading to the decision to maintain the current Peerperform rating.

In other recent news, Goldman Sachs Group Inc (NYSE:GS). has experienced significant developments. The firm reported a substantial increase in its second-quarter earnings, more than doubling to $3.04 billion. This growth has been attributed to a strong performance in debt underwriting and fixed-income trading.

Goldman Sachs also saw a 21% rise in investment banking fees to $1.73 billion in the quarter, fueled by increased fees from debt and stock underwriting and mergers and acquisitions advising.

However, the company has also faced challenges. Goldman Sachs has appealed the U.S. Federal Reserve's recent stress test outcome, which mandates the bank to maintain a higher level of capital.

The stress test results indicated potential losses on credit card loans, leading to an increase in Goldman Sachs' stress capital buffer requirements. The firm is actively engaging with the Federal Reserve to gain clarity on this matter.

The firm has also revised its projection for China's economic growth in 2024, adjusting the GDP growth forecast down to 4.9% from an earlier estimate of 5.0%. This change was in response to the latest economic data indicating a slowdown in China's economy.

The team of economists at Goldman Sachs, led by Lisheng Wang, has suggested that additional policy easing might be required to support China's domestic demand. These are just some of the recent developments at Goldman Sachs.

InvestingPro Insights

Goldman Sachs (NYSE:GS) has demonstrated resilience and adaptability in its latest earnings report, with notable strengths that align with several InvestingPro Tips. As a prominent player in the Capital Markets industry, the company has maintained dividend payments for an impressive 26 consecutive years, with a recent uptick in its dividend growth at 10.0% for the last twelve months as of Q1 2023. Additionally, Goldman Sachs has shown a strong return over the last year with a 51.53% price total return, reflecting robust market confidence and a solid track record of performance.

InvestingPro Data highlights Goldman Sachs' market capitalization at a robust $163.06 billion, with a P/E ratio of 18.73, indicating a healthy valuation relative to earnings. The firm's revenue growth for the last twelve months as of Q1 2023 stands at 4.6%, with a substantial quarterly revenue growth of 12.1% for Q1 2023, showcasing Goldman Sachs' ability to grow its top-line revenue effectively.

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