Shares of Goldman Sachs Group Inc. (GS, Financial), a major New York-based investment bank, surged as much as 5% on Wednesday on the heels of reporting second-quarter earnings that smashed analyst estimates. Despite this, the investment bank pared early gains on the CEO’s announcement that trading activity decelerated over the past few weeks.
Company reports record revenues across several business segments
The investment bank produced one of its biggest earnings outperformance over the past 10 years. For the quarter ending June 30, Goldman Sachs reported net income of $2.42 billion on $13.3 billion in revenue.
Diluted earnings of $6.26 per share outperformed the prior-year quarter's earnings by 45 cents, the March quarter earnings by $3.15 and the June quarter Refinitiv consensus estimate by $2.48.
Goldman Sachs Chairman and CEO David Solomon said that the strong quarterly results demonstrate the “continued dedication” of the company’s employees to helping clients navigate the challenging environment driven by the coronavirus pandemic. Investment banking revenue reached a new quarterly high of $2.66 billion on the back of record net revenues in both equity and debt underwriting.
Global markets revenue for the June quarter was $7.18 billion, of which $4.24 billion was in fixed income, currency and commodities and $2.94 billion was in equities, both close to nine-year highs on the back of strong client activity in intermediation and financing.
Shares cut gains on lower trading activity in recent weeks
Goldman Sachs warned that the coronavirus pandemic, which has impacted over 3 million people according to Johns Hopkins University statistics, resulted in a deceleration in global economic activity and elevated market volatility. According to CNBC, Solomon said that trading activity has decelerated “over the past 5-6 weeks” despite a strong spike during the second quarter. Solomon’s warning sent shares near the flatline despite trading at an intraday high of $225.24, up 5.25% from the previous close of $214.
GuruFocus ranks Goldman Sachs’ financial strength 2 out of 10 on the back of equity-to-asset and debt-to-equity ratios underperforming over 89% of global competitors, suggesting high leverage. The website warns that Goldman has increased its long-term debt by $39.4 billion over the past three years.
Gurus with holdings in Goldman Sachs include Dodge & Cox and Hotchkis & Wiley. Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) owns 1,920,180 shares as of the March-quarter filing, down 84% from the fourth-quarter 2019 filing.
Disclosure: The author has no positions in the stocks mentioned. The mention of guru holdings in this article reflect holdings as of the March-quarter filing and do not consider any trades made during April-June. Per Securities and Exchange Commission regulations, the deadline for quarterly trades is 45 days after the quarter ends.
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