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September 01, 2020 1:37pm
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Goldman's report: Can it send the stock back to highs?

Goldman Sachs phone and background

Having delivered a miss in last October's Q3 report, investors would have been expecting a strong bounce back from Goldman Sachs Group, Inc. (NYSE: GS) ahead of this morning's Q1 release. The banking giant came in strong with a solid beat on both headline numbers, with their EPS landing 40% higher than expected and revenue showing growth of 6.9% year on year.  

While it will take a day or two for Wall Street to fully digest the report beyond the headline beat, early indications were that this was just what the doctor ordered. Shares were trading marginally up in Tuesday's pre-market session, and investors will be watching closely to see if this report can fuel another attempt at both recent highs and the all-time one, too. 

Outperforming peers

Since setting that back in late 2021, Goldman Sachs has, for the most part, managed to outperform its peer group. Compared to the SPDR S&P Bank ETF (NYSEARCA: KBE), which is down 20% since then, Goldman's stock is only down 8%. And while it did spend a large part of last year range-bound, its shares have looked quite keen to break through the upper end of the range in recent weeks. 

Coming into the start of last week, they'd managed to tack on 35% since the beginning of November, which had them just a couple of cents below their highest point since 2021 and less than 10% from the all-time high set that year. While beating analyst expectations for earnings and revenue is now a staple characteristic of any good earnings report, Goldman looks to have enough good points beyond those to give shares the fuel they need to start testing these levels again. 

The company's Asset & Wealth Management unit, in particular, performed well, helping to offset the decline seen in Goldman's Global Banking & Markets segment. Revenue from the bank's bread and butter activities, such as equity underwriting, also did well, and there were positive signs that the ongoing restructuring is starting to pay dividends, with CEO David Solomon calling 2024 "a year of execution." 

Also of note was the bank's provision for credit losses, which once again narrowed, coming in at $577 million. This compared favorably to the $972 million for the same quarter last year. All told, Goldman's profit was, at $2 billion, up more than 50% year on year, putting the company in a very good position to capitalize on what should be a bullish year for banks

Getting involved 

With expectations increasing for the Fed to cut rates this year, it's not only tech stocks that are benefitting. While on paper, higher rates might seem to be a tailwind for banking in general, in reality, lower rates mean higher asset valuations. Hence the rally seen in Goldman and its banking peers since November. 

For those of us on the sidelines, there's enough in this report to justify getting involved on the long side. Goldman has delivered better-than-expected growth to close out 2023 strong, meaning it gets to start 2024 on the front foot and confident in its ability to continue executing. The same can't be said for many of its peers; Morgan Stanley (NYSE: MS), for example, missed expectations on their earnings this morning, while Citigroup Inc (NYSE: C) missed on their revenue number last week. 

These misses won't do Goldman any favors in the short term, as they'll likely pull down investor sentiment on bank stocks as a whole, but they highlight just how well Goldman has been doing. Look for shares to continue consolidating around the $380 mark, with a move towards $390 likely to result in a firm breakout. This would confirm that the uptrend remains intact and would set the stock up nicely toward 2021's all-time high of around $425.

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