Goldman Sachs Group Inc (GS, Financial) earned $1.98 a share in the second-quarter on revenue of $9.07 billion, compared to $4.10 a share on revenue of $9.12 billion. Earnings missed analysts’ expectations of $3.85 a share.
The bank would have posted earnings of $4.75 a share, but it has recorded some expenses, on its book is reflected a $1.45 billion charge for mortgage-related litigation and regulatory matters, which reduced earnings by $2.77 a share.
Sales can be divided by segment. The financial advisory business has increased by 62% and the investment banking revenues increased by 13% when compared to the second quarter of 2014. Revenue from equity underwriting rose 9%, while investment banking raised more. But the weak point of the quarter was the trading business, with a decrease by 6%. Further, fixed income commodity and currency trading unit declined by 28% but a 24% increase in equity trading revenue offset the situation. The figures amounted to a net revenue dropped 3%.
LLoyd Blankfein, CEO of Goldman Sachs, attributed falling fixed income trading activity to economic uncertainty in Europe, “while uncertainty in the EU weighed on investors' level of conviction, many of our businesses continued to benefit from generally improving economic conditions," Chief Executive Lloyd Blankfein said in a statement.
The largest shareholder of the bank at the end of the first quarter was Warren Buffett (Trades, Portfolio)´s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) with 12.63 million shares and the stake representing 2.21% of his 107.1 billion portfolio.
Looking closer in time, Yacktman Fund (Trades, Portfolio) reported decreasing his stake in the bank on June 30, according to GuruFocus Real Time Picks. Yacktman’position decreased by 28.57% to 250,000 shares.
| Period | Bought/Sold | % Change | Qtr. End Shares | Avrg. Price |
| 2011Q4 | New holding | 0 | 350000 | $97.58 |
| 2015Q2 | -100000 | Reduce 28.57% | 250000 | $203.76 |
Source: GuruFocus
This bearish sentiment reminds me a Mohnish Pabrai (Trades, Portfolio), who was one of the largest shareholders of Bank of America, until he sold off one-third of its stake on the fourth quarter of 2014, but then in the first quarter of 2015 he sold out his entire position.
In terms of valuation, the stock sells at a trailing P/E of 11.21x, trading at a discount compared to a median of 18.9x for the industry. To use another metric, its price-to-book ratio of 1.22x indicates a premium versus the industry median of 1.18x while the price-to-sales ratio of 2.78x is below the industry median of 3.48x. Two ratios indicate the stock is relatively undervalued and so subject to a potential buy. Most analysts have a bullish opinion on the bank: 1 Sell Rating(s), 9 Hold Rating(s) and 4 Buy Rating(s).
When looking at the consensus price target, it stands at $211.54 again according to MarketBeat, giving a 0.67% downside potential. The share price has surged by 23.6% when compared to its closing price of one year ago and the year-to-date return for the stock is 8.8% beating the KBW bank index.
Final comment
Whether or not the bank beats the earnings, I think this is a value investment at the current market price and investors should be rewarded in the future. I think taking positions in banks will be a great choice for your long-term portfolios.
Disclosure: Omar Venerio holds no position in any stocks mentioned
