Goldman Sachs Group Inc (NYSE:GS) reported impressive third quarter of fiscal year 2016 (3QFY16) results. Goldman Sachs’ core earnings per share (EPS) of $4.73 was able to beat the consensus estimate of $3.82 by 24%. The 3QFY16 result was an across-the-board beat on top and bottom lines, fixed income and commodity. Moreover, currency (FICC) trading was the noteworthy division this quarter as its revenue went up by 49% on a year-over-year (YOY) basis.
Compared to the reported 3QFY16 EPS of $4.88, BMO Capital’s calculated core EPS came at $4.73 as they removed the one-time gain on the exchange of preferred shares and the benefit of a lower-than-normal tax rate. Meanwhile, they added back their cost of exiting offices and the legal charges incurred by the bank.
BMO Capital Market has remained bullish on Goldman Sachs and has increased its estimates by 3-8% after the earnings. However, surprisingly, the sell-side firm has decreased the price target to $200. They praised the performance of the Goldman Sachs, but still prefer Citigroup and Morgan Stanley amongst large-cap US banks.
The sell-side firm has raised Goldman Sachs’ core EPS estimates for year-ended 2016 by 8% to $15.39 from $14.24. They have also raised the 2017 estimates by 5% to $18.47 from $17.53. For 2018, they have only increased the estimates by 3% to $20.46 from $19.86.
The upgrades in estimates made in the near term earnings are mainly impacted by higher than previously forecasted net trading revenues and expected compensation leverage. On the other hand, the longer-term earnings upgrades are influenced by the lower recurring tax rate, which is now at 28% and better expectations attached with assets under management growth in the investment management business.
The reason for the slight decline in price target by the sell-side firm is the slightly slower capital-adjusted growth. However, the $200 price implies over 16% upside potential for the bank’s shares.