Goldman Sachs (NYSE:GS) reported its third quarter earnings this morning and handily beat Wall Street's expectations on both earnings and revenue. Despite the excellent results, shares actually lost value, mainly due to global fears plaguing the overall market.
It makes me wonder: Is this a buying opportunity in the brightest minds on Wall Street?
The numbers look good
Goldman produced earnings of $4.57 per share on $8.39 billion in revenue for the quarter, easily surpassing the expectations of $3.21 per share and $7.85 billion in revenue.
Impressively, Goldman Sachs has completed more mergers and acquisitions, as well as in equity-related and common stock offerings than any other investment bank in the world, which is the main reason that Goldman's advisory revenues jumped by 40% from the same quarter last year. The investment bank produced net revenues of $1.46 billion for the quarter, which is an impressive 26% year-over-year increase.
The company's Institutional Client Services division also saw a 32% year-over-year increase in revenue, and saw impressive annual gains in fixed income, currency, and commodities.
Goldman's assets under supervision increased significantly year over year, mainly due to the strong returns of the S&P, but also experienced $20 billion in net inflows, which is the most significant kind of growth. In other words, more people and corporations are putting money into their Goldman Sachs accounts than are withdrawing. This increase in assets caused investment management revenue to rise by 20% as compared with the same quarter last year.
And the company managed to keep its expenses in check during the quarter, with total operating expenses 19% lower than during the second quarter. Expenses rose by 12% from the third quarter last year, but that is actually a very positive sign, considering that revenue rose at more than twice that rate.
The dividend increase shows confidence
Goldman has never really been a "high dividend" stock, preferring to invest most of its profits back into the business instead. However, a dividend hike is a dividend hike, and Goldman Sachs just increased its quarterly payout to $0.60 per share, effectively giving shareholders a 9% raise.
More important than the amount of the dividend increase is the confidence it conveys. And after the increase, shares yield about 1.4%, which is rather high for Goldman on a historical basis.
So why are shares down?
Following the announcement, shares dropped about 3% in premarket trading (and remain down over 2% as of this writing) to their lowest level in two months.
This seems to be a trend this earnings season, mostly because of fears that global economic issues could adversely affect the banks' profits. Bank of America also dropped after reporting a very good quarter that handily beat analysts' expectations.
Still, Goldman has proven its ability to make money in any economic environment, and the current environment is actually much better than the market would have you believe. I think the current sell-off represents an excellent buying opportunity in the banking sector in general, and especially Goldman Sachs. After all, this is the company Warren Buffett once referred to as "a bet on brains."