Global investment banking leader Goldman Sachs (GS - Free Goldman Sachs Stock Report) reported weak financial results for the third quarter of 2019. The company's revenue and share net figures were both down significantly from the same period in 2018.
Revenues came in at $12.774 billion for the September quarter, which was below our estimate of $13.5 billion, as well as the $13.025 billion figure in the previous-year period. Meanwhile, earnings per share of $4.79 missed our $6.70 estimate by a wide margin, and also marked a considerable decline from the $6.28 tally in the third quarter of 2018.
The dismal performance was partly driven by a 17% revenue decline in the Investing & Lending segment, owing to significant net losses from investments in public equities. Meanwhile, the Investment Banking division saw a 15% drop in revenues, driven by declines in merger and acquisition transactions, equity underwriting activity, and initial public offerings.
In light of the poor performance relative to our estimates and previous-year comparisons, we have lowered our 2019 and 2020 outlook for Goldman Sachs. Whereas we had previously anticipated full-year revenues of $54.5 billion and $56.0 billion for this year and next, we now expect to see totals of $53.5 billion and $55.0 billion, respectively. Meanwhile, we have shaved $3.00 off our 2019 share-net estimate, and now anticipate earnings per share of $22.30, while we have reduced our 2020 share-net call from $28.00 to $26.00.
Despite our curbed expectations for the company, shares of GS appear to be conservatively valued on a price/earnings ratio basis. As a result, Goldman's repurchases, which totaled 3.1 million shares in the September quarter, are likely an efficient way to return capital to shareholders. Furthermore, the board of directors raised the dividend nearly 50% beginning with the September payout, making the stock attractive to income investors.
All told, we believe these high-quality shares are a solid investment on a risk-adjusted basis, in spite of recent setbacks.
About The Company:The Goldman Sachs Group is a global investment banking and securities firm. It operates in four business segments: Investment Banking (22% of 2018 revenues); Institutional Client Services (37%); Investing & Lending (22%); and Investment Management (19%).
– Adam J. Platt
