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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


July 18, 2016 - Goldman Sachs Reports Second-Quarter Results July 19


What's Happening

Goldman Sachs (GS) will announce its second-quarter results on July 19, before the market open. The consensus calls for earnings of $3.01 per share, up from $1.98 during the same period last year. GS stock is currently bouncing, but the stock remains down 10.3% for the year.

Technical Analysis

GS was recently trading at $161.68, down $52.93 from its 12-month high and $23.48 above its 12-month low. Technical indicators for GS are bearish and the stock is showing signs of a possible trend reversal. The stock has recent support above $151.50 and recent resistance below $163.25. Of the 13 analysts who cover the stock, six rate it a "strong buy", one rates it a "buy", five rate it a "hold", and one rates it a "strong buy". The stock receives S&P Capital IQs 5 STARS "Strong Buy" ranking.

Analyst's Thoughts

So far this earnings season, the big financials have produced mixed results. JP Morgan (JPM) kicked off the season with better than expected results, but Wells Fargo (WFC) reported bottom-line results that were in-line with the consensus and missed the consensus on the top-line. Citigroup (C), on the other hand, was able to top estimates on both the top and bottom lines. While Well Fargo’s revenue miss does raise concerns, the overall trend is upbeat, and suggests that Goldman Sachs should report decent results as well. Analysts forecast earnings of $3.01, but the Street’s whisper number is higher at $3.09, indicating Wall Street remains bullish on the stock, and the sector as a whole. Goldman has topped analyst estimates each of the last two quarters, but last quarter revenues were slightly weaker than expected. The stock has trended lower since the last earnings report, but have rebounded nicely over the last few weeks, and a solid quarterly report should result in more strength, and help the stock erase more of its previous losses.

Stock Only Trade

If you're looking to establish a long stock position in GS, consider buying the stock under $161.75. Sell if it falls below $145.50 or take profits if it gets to $186.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider an October 130/135 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (28.0% annualized*) and the stock would have to fall 16.3% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an October 185/190 bear-call credit spread for a $0.35 credit. That's a potential 7.5% return (28.0% annualized*) and the stock would have to rise 14.6% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider an October $160.00 covered call. Buy GS shares (typically 100 shares, scale as appropriate), while selling the October $160.00 call for a debit of $153.40 per share. The trade has a target assigned return of 4.3%, and a target annualized return of 16.0% (for comparison purposes only).

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