GS Preview: Can the pivot from consumer offset valuation concerns

Goldman Sachs (GS) is set to report its Q3 2024 earnings before the market opens on October 15, with analysts expecting EPS of $6.89 and revenue of $11.77 billion. This represents a year-over-year EPS increase of 26% despite a slight decline in revenue. Investors will be watching to see if the firm can navigate ongoing market challenges, including a dip in trading revenue, and how its shift away from consumer banking will impact results. In the previous quarter, GS posted strong earnings with an EPS of $8.62 and revenue of $12.73 billion, which helped the stock push toward its 2024 highs.

A key focus for this earnings report will be Goldman’s move away from consumer banking, particularly its decision to exit the credit card partnership with General Motors and the sale of its consumer business, GreenSky. Goldman is refocusing on its core strengths of investment banking, asset management, and trading. This strategic pivot is seen as a long-term play to align its resources with higher-margin business areas, especially as the consumer banking venture proved less profitable than expected.

One key element to watch will be investment banking performance, especially as global merger and acquisition activity has rebounded. M&A volumes increased 20% in the first half of the year, providing a favorable environment for GS's advisory business. Equity capital markets activity also grew by 10% year-over-year, which could boost Goldman’s results in equity underwriting. However, CEO David Solomon has warned of a potential 10% decline in trading revenue due to August's volatile market conditions, which could weigh on overall results.

Despite trading revenue challenges, GS’s investment banking strength and focus on debt and equity underwriting may help offset losses. In Q2, the firm saw a 21% increase in investment banking fees, driven by higher deal activity, and this positive trend could continue into Q3. Additionally, Goldman’s asset and wealth management divisions are likely to contribute strongly, supported by higher assets under supervision and favorable market conditions. Investors will closely watch how these segments perform relative to expectations.

Recent price action suggests that Goldman’s stock has been trending higher, approaching new all-time highs, although concerns over slowing revenue growth and broader economic uncertainties have made investors cautious. The stock has risen over 24% since last quarter, leading some analysts believe the stock may be fully valued at current levels, especially given the heightened expectations going into this earnings release. Market sentiment will likely hinge on whether GS can deliver another earnings beat while navigating near-term challenges.

Following Q2’s solid results, which saw double-digit growth in both Global Banking & Markets and Asset & Wealth Management, investors will look for similar strength in Q3. However, GS may face increased scrutiny as trading revenue expectations are lower, and concerns about cost pressures in its core divisions remain. Management’s commentary on deal flow, trading performance, and the macroeconomic environment will be key to guiding future expectations.

Looking ahead, Goldman Sachs’s stock performance post-earnings will depend on how well it handles these pressures. If GS meets or exceeds earnings expectations, the stock could push further toward its all-time highs. However, any disappointment in trading results or lower-than-expected investment banking performance could result in a pullback. Investors will also be paying attention to forward guidance and updates on the firm’s strategic initiatives, particularly in light of the recent exit from consumer banking.