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Market Update

Earnings on Tap: Goldman Sachs

Wall Street sees Goldman achieving year-over-year gains, while the firm is positioning itself for above-average returns on capital over the long run.

 Goldman Sachs Group (GS) will be reporting second-quarter earnings before the markets open Tuesday.

The consensus estimate is for earnings of $2.81 per share compared with $1.78 per diluted share in the year-ago quarter.

The second quarter is not expected to be as strong as first quarter for the firm as a result of a seasonal decline in trading and investment banking and also comparatively weaker performances across some other business lines. In the first quarter, Goldman reported net revenues of $10.09 billion and net earnings of $2.26 billion, which handily beat Wall Street estimates. Diluted earnings per share was $4.29 compared with $3.92 in the first quarter of 2012 and $5.62 for the fourth quarter of 2012.

Goldman Sachs has a reputation for being one of the savviest business dealers on Wall Street, writes Morningstar analyst Michael Wong. The firm's recent years of excess profitability were fueled by the combination of leverage and risk-taking with the firm's own capital, adds Wong. 

Even though potential revenue and earnings swings past 2014 will depend on how the company operates in the new regulatory environment, Wong says Goldman will likely remain one of the strongest investment banks and earn above-average returns on capital in the long run.

The stock has rallied more than 25% since the start of the year and is presently trading near our fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.