Traders at 7:30 AM
Is that number real?
EPS of $6.04.
What were they looking for?
No way... Like four something ... right?
How did Solomon pull that off?
How old are you?
The Empire and a Kid Named Douglas
Goldman Sachs (GS) , left for dead by many... put their fourth quarter results to the tape on Wednesday morning. The firm beat earnings expectations by $1.74. One dollar and seventy-four cents! You want sales? The Empire beat revenue projections by a cool $580 million. No joke. The stock? Up nearly 8% as I bang out this late-morning piece. What is also no joke is a piece I ran across at Real Money Pro back in late December. Your pal, Doug Kass... yeah, not only did he tell anyone willing to read that he liked the banks going forward, but that Goldman Sachs was his top pick for 2019. Holy Toledo, Doug. It's January 16th. Nice job. Doing anything interesting for the next 349 days?
Nuts and Bolts
I guess the headline here would be that net interest income increased by 16% over Q3, and 10% year over year. Also huge, boring in a newspaper sense, but huge... operating expenses were reduced by 8% from the third quarter, while what the firm's provision for income taxes fell to just $170 million from the $554 million they reported on that line three months back. Trading. Everyone wants to talk trading. Okay, Goldman took a hit as fixed income trading revenue dropped to $822 million, but equity trading was hot in a rough quarter, up 17% to $1.6 billion. Did I already say, nice job?
The truth is that when you go through the list of line items that there is good and bad throughout the report. Bottom line is that book value at quarter's end stood at $207.36 per share. The last sale I see of $192.85 is still a 7% discount to that number. That's also roughly where I sold the shares in November. Too late to catch this bus? That's really what you, the reader wants to know, right?
There is a new sheriff in town. Perhaps the days of under-performance are in the past? Just listen to what Chair and CEO David Solomon had to say... "For the year, we delivered double digit revenue growth, the highest earnings per share in the firm's history and the strongest return on equity since 2009." Hmm.
Traders Later On
I don't think he's scared.
He's definitely not scared.
What's wrong with you two?
Goldman Sachs Trade Idea (minimal lots)
As you read this chart, you'll notice immediately that the share price is pressed up against a 50% retracement of the November through December selloff. Unlike a lot of other names that have rebounded over this time, there seems to be enough volume on the tape to consider the move more convincing than I might have otherwise thought. Long term the downward sloping Pitchfork is still more or less intact. That said, there is no reason to believe that the shares can not make a serious run at the $202 level after these earnings are digested by the marketplace. I believe that level is where the battle will be fought sometime between now and the next reporting season. Do I love Goldman Sachs? No. We missed that bus, but that does not mean that we can't try to make some dough.
-Purchase one GS $195 April Call (Value: $9.95)
-Sale of one GS $210 April Call (Value: $4.15)
-Sale of one GS $170 April Put (Value: $2.92)
Notes: This entire options strategy requires no equity position while opening the possibility of equity risk down at the $170 level. The aggregate debit involved here is a layout of $2.88. Best case... the shares run past $210 by April. In that case the trader pockets the $15 less that $2.88 for a net profit of $12.12 (421%). Worst case? The trader is wearing 100 shares of GS in April at a net basis of $172.88 with the shares trading south of $170.