14 July, 2009

Goldman, Johnson earnings upsides lead choppy day in the markets

Goldman Sachs (GS) was the center of the banking world over the last 2 days as an upgrade of the company by its lonesome propelled the entire financial sector higher to start the week. Today the numbers came and they were impressive.

Goldman, still as black-of-a-financial-box as there is on Wall Street proved that its formula still prints greenbacks. Despite an over-the-top piece in Rolling Stone magazine calling Goldman Sachs a money-sucking 20,000 Leagues Under The Sea creature, the bank just keeps on rolling and keeps on paying its employees. After taking in $13.8Billion in Revenues (vs. $10.6Billion estimate) the company set aside over $6.65Billion for employee compensation and earned $3.44Billion, or $4.93/share. The bright-eyed Wall-Streeters were expecting a still brilliant but in hindsight subdued $3.65/share in profits. Yes Goldman is taking on more risk with the VAR (Amount Goldman can lose every day) number climbing on a year-over-year basis to the $240Millions from the $180s Millions but GS has proven time and again to be the most adept at assimilating increasing risk, and with no TARP monkey on its back, the bank can continue to attract that top-prized talent, and compensate that talent well past market standards. Goldman stock is virtually flat today, as most gains were made yesterday on the pre-earnings analyst upgrade. A complete break-down of Goldman's earnings announcement is provided by Bloomberg (Link).

Despite Goldman tripling of its lows of $50 in November, and a double from its recent dip in March to $75, the company stock at $150 is still off of 2007 highs of $250/share. Now it certainly wont be easy to get there soon, and even the mighty Goldman will need economic help to continue surging, however it is the best company in its sector and despite a 77% upside performance year to date, it is a financial institution that is leaving its competitors in the rear-view mirror faster than any other industry leader can boast.

Johnson & Johnson (JNJ), the consumer giant, was also on tap in the earnings game and after a pre-market spike, the stock came back to hover up only about a single percentage point. Despite lower profits on a year-over-year basis JNJ still beat expectations and turned markets from a bearish tone into one that was decidedly more bullish. The ongoing recession, turbulence in global currencies and competition from generics were the main causes of blame for JNJ's 3% drop in earnings, however spending cuts and a tighter business belt helped the health company beat expectations in the quarter.

JNJ reduced spending on administration, research and sales by about 13% and reduced production costs by 6% according to Forbes. The company earned $1.15/share (vs. 1.17/share last year and estimates of $1.11/share) on $15.24Billion in Revenue (vs. 16.45Billion last year and estimates of $15Billion). So although both the top and bottom line numbers were down year over year, the company managed to top estimates on both important metrics in a economic marketplace that was called by the company CFO as one of the most difficult in company history. The company stills right in the middle now of its 52-week range, and with a yield of over 3% is an attractive consumer staple for a balanced portfolio. With re-assurances from management on 2009 profitability, its a name that will give steady market performance despite dragging American unemployment.

Disclosure: Author owns GS

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