Positive responses to bank earnings on Monday helped to offset broad weakness. Tuesday morning Goldman Sachs (GS) reported its results and the big question is whether it can keep the momentum going in the financial sector. Banks and financials have been the laggard group for a while, but bargain hunters have discovered them and are accumulating as valuations look reasonable compared to other areas of the market.
Action Alerts PLUS holding Goldman posted a solid bottom-line beat with earnings of $5.98 per share compared to consensus estimates of $4.65. Revenues were up a very impressive 19% over last year and beat consensus estimates as well. There are plenty of other details for the analysts to dig into but these numbers are solid and the stock is trading up slightly in the early going.
The sub-headline on the news is that Lloyd Blankfein will retire as CEO and David M. Solomon will take his place effective Oct. 1. This change was well signaled and is not having any impact on trading.
After today's report Goldman stock is trading at a trailing P/E multiple of just 10x. It is currently expected to grow earnings 17% overall during 2018 and an additional 9% in 2019 but the likelihood is that those numbers will come up. On a valuation basis the stock looks attractive.
Technically, Goldman has bounced off recent lows with the rest of the financial sector and managed to close above the 50-day moving average Monday on the strength in the sector. This gap-up open puts it in a slightly extended technical positive but the report is probably strong enough to create some underlying support. The 50-day simple moving average around $231 is the key technical support at this time.
(Read Bruce Kamich's technical analysis of Goldman Sachs here.)
The stock could break the downtrend line from the March high around $275 if the early strength holds. There is plenty of overhead but there are indications that a bottom has formed and that the stock can be accumulated. If the July lows come back into play that will change the story but that is not an immediate concern.
I'd put Goldman on my buy list but would accumulate slowly and look for opportunities on some pullbacks after the initial euphoria wears off.
