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Source: istock, Goldman Sachs

Goldman Sachs Posts Strong Results — Did Buffett Miss Out?

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Goldman Sachs reported its third-quarter earnings on Wednesday, Oct. 14. The company's results were better than expected. The stock was trading higher in pre-market trading. Berkshire Hathaway chairman Warren Buffett invested in the bank in 2008. He fully exited his investment in the second quarter. Did Buffett miss out by exiting? What are the key takeaways from Goldman Sachs’s earnings call and how did the bank perform in the tough quarter? 

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When did Goldman Sachs report earnings?

Goldman Sachs, the fifth-largest U.S. bank, reported its third-quarter earnings before the markets opened on Oct. 14. The bank generated revenues of $10.78 in the quarter, which beat analysts’ estimate of $9.46 billion. The EPS of $9.68 shattered analysts’ estimate of $5.57. So far, it has been a mixed earnings season for banks. While J.P. Morgan Chase and Citigroup posted better-than-expected earnings, Wells Fargo and Bank of America disappointed the markets.

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Source: Getty
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Goldman Sachs's earnings report highlights

Goldman Sachs reported a record quarterly EPS in the third quarter while its annualized return on equity of 17.5 percent was the highest since 2010. Due to a surge in U.S. IPOs, Goldman Sachs reported its second-highest net revenues ever in equity underwriting. The bank also strengthened its balance sheet in the third quarter. Goldman Sachs's tier 1 capital ratio rose by 120 basis points to 14.5 percent in the third quarter.

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Goldman Sachs’s bond trading division was particularly strong in the third quarter. The division reported revenues of $2.50 billion in the third quarter, which was almost 25 percent higher than what analysts expected.

“Our ability to serve clients who are navigating a very uncertain environment drove strong performance across the franchise, building off a strong first half of the year. As our clients begin to emerge from the tough economy brought on by the pandemic, we are well-positioned to help them recover and grow, particularly given market share gains we’ve achieved this year,” said Goldman Sachs’s chairman and CEO David Solomon on the earnings.

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What is Goldman Sachs's stock price today?

Goldman Sachs stock opened 1.5 percent higher at $214.01 on Oct. 14. At the end of the third quarter, the bank had a book value per share of $229.49. Goldman Sachs is trading below its book value, which is a sign of undervaluation.

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Goldman Sachs's dividend

So far, Goldman Sachs has paid three dividends of $1.25 each this year. Earlier in October, the bank announced another dividend of $1.25 per share that would be paid on Dec. 20. Based on current stock prices, Goldman Sachs’s dividend yield works out to 2.3 percent. Earlier this year, the Federal Reserve barred banks from increasing their dividends in 2020.

What is Goldman Sachs's stock forecast?

According to the estimates compiled by TipRanks, Goldman Sachs has an average target price of $250.64, which is a premium of almost 19 percent over the current prices. The highest target price is $326, while the lowest target price is $200.

Overall, Wall Street analysts are bullish on Goldman Sachs. Among the 15 analysts actively covering the bank, 10 have a buy or equivalent rating, while five have a hold rating.

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