This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Goldman Sachs' Bottom Line Growth Is Key Earnings Driver

NEW YORK ( TheStreet) -- Goldman Sachs (GS - Get Report) shares have been driving higher into 2013 on optimism of a recovering economy, investor inflows into stock markets and expectations that the standalone investment bank is well positioned for an eventual merger and acquisition wave.

While fourth quarter earnings are likely to show Goldman Sachs at the head of the Wall Street pack when it comes to underwriting and trading revenue, the bank still has room to prove to investors it stands apart from peers such as Morgan Stanley (MS - Get Report).

Notably, Goldman is one of just a handful of banks that's been able to deploy excess capital to reduce its share count in recent years, helping to return its earnings per share to pre-crisis levels, even if other metrics like absolute revenue and return on equity remain well below 2007 levels.

As Goldman focuses on right sizing its expense and balance sheet, investors should pay attention to capital returns -- and share buybacks in particular -- as a key part of the bank's share performance in 2013 given uncertainty surrounding trading and investment banking revenue.

" Goldman should be able to step up their share repurchases and dividend payments," says Michael Wong, an equities analyst with Morningstar, of his expectation of greater capital returns in 2013. Wong notes that given the cyclicality of Goldman's earnings, the bank generally prefers share repurchases over dividend payouts, which are harder to change in uncertain economic environments.

Currently, Goldman, like its large cap banking peers, has submitted a capital plan for the Federal Reserve's that will drive any added share repurchases or dividends in 2013.

Already, Goldman has been able to deliver predictable share repurchases that go straight to the bottom line for shareholders.

A Jan. 14 analysis by bank research firm KBW shows that among banks submitting capital plans to the Fed, Goldman is one of just five firms that's been able to consistently reduce its share count through share repurchases in the wake of the crisis. Meanwhile, in 2012, the KBW analysis shows Goldman is one of just seven banks who's total payout ratio of dividends and net repurchases is greater than 50% of profits.

"This group of large-cap banks are positioned well for total return investors, in our view, and will likely be added as core holdings to portfolios in 2013," writes KBW analyst Frederick Cannon, in the client research note.

Such expectations contrast sharply with Goldman's main standalone investment banking competitor Morgan Stanley that -- like Bank of America Merrill Lynch (BAC - Get Report) -- has seen its share count exceed overall asset growth. " Capital management will be critical in a slow-growth, highly regulated, banking world... the most successful banks will need to be reducing shares outstanding to achieve strong EPS growth," Cannon adds.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BAC $15.84 0.00%
GS $189.67 0.00%
JPM $62.13 0.00%
MS $35.09 0.00%
AAPL $128.54 0.00%

Markets

DOW 18,096.90 -106.47 -0.58%
S&P 500 2,098.53 -9.25 -0.44%
NASDAQ 4,967.1410 -12.76 -0.26%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs