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How Will Goldman Sachs (GS) and Morgan Stanley (MS) Perform After Big Banks Earnings?
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Earnings season is now in full session after JP Morgan (JPM - Free Report) and Citigroup (C - Free Report) beat earnings on Friday while Wells Fargo (WFC - Free Report) stumbled. Bank of America (BAC - Free Report) and Blackstone (BLK - Free Report) were the headliners on Monday, both surpassing expectations and boosting investor confidence.
BAC stock gained over 2.4% in morning trading Monday after reporting earnings of $0.63 on revenues of $22.6 billion. These surpassed our Zacks Consensus Estimates of $0.57 and $22.5 billion respectively. EPS numbers represented 43% year-over-year growth while revenue numbers slipped 1% from the year-ago quarter.
BLK’s adjusted earnings per share of $6.66 outpaced our estimate by six cents. Revenue numbers were equally solid, coming in at $3.61 billion and beating by $160 million. These figures grew 28% and 11% over the same period a year ago.
Moving forward, investor eyes will turn to Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) , which are slated to report earnings Tuesday and Wednesday before market open. Will they build on the momentum or bring recession worries back into the spotlight? Let’s take a look.
Goldman Sachs
According to our latest estimates, analysts see GS reporting $4.67 in earnings per share on revenues of $8.71 billion, which would represent 18.2% and 10.4% growth year-over-year. Investors should note that the company has seen three negative and two positive earnings estimate revisions in the last 60 days. This mixed revision activity has left GS sitting at a Zacks Rank #3 (Hold).
Shares of GS are down 11.1% year-to-date as the firm has been hammered by lower client-activity levels in equity, fixed income, currency and commodity markets, along with political uncertainty in the US. While this might seem scary, it isn’t Goldman-specific, as industry competitors are down an average of over 8% year-to-date on many of the same headwinds.
GS has established a track record of strong earnings performance, averaging a positive surprise of 18.1% over the last four quarters. The company has beaten expectations on 9 of its last 10 earnings reports and remains well positioned for growth, given its strong investment banking operations and solid client franchise. Its business diversification also leaves the firm well-hedged against many of the concerns that have recently plagued the financial industry.
Morgan Stanley
Latest estimates have MS coming in at $1.08 in earnings per share on $9.96 billion in revenue, which would represent 24% and 4.8% respective growth over the same period a year ago. In the last 60 days, the company has seen four negative estimate revisions for the current quarter and current fiscal year, with one coming in the last week for both periods. However, analysts have also revised estimates upward for next quarter and the next fiscal year, again leaving overall sentiment mixed and keeping MS at a Zacks Rank #3 (Hold).
MS stock has performed in line with competitors, losing 8.4% in value year-to-date. Again, it has felt the same pains that its competitors have, including management expectations that net interest income growth will slow down, even though it grew last quarter. Still, outlook on the company has remained relatively stable as Moody’s affirmed its A3 senior debt rating in March.
Morgan Stanley is on a 10-quarter earnings beat streak, posting an average surprise of 12.9% over the last four quarters. The company has remained focused on restructuring its operations to lower balance-sheet risks and focus on its less capital-intensive businesses: wealth management and investment management. Considering the strength of the overall economy and the large proportion that trade income represents on its bottom line, MS could potentially see some solid numbers this quarter.
Outlook
Banks have seen notable benefits from the Trump administration’s corporate tax cuts along with loan growth. However, the 10-year/2-year yield curve has flattened considerably, hurting lenders through narrowing profit margins. A flattening yield signals that investors are cautious about the outlook for long term macroeconomic growth. Meanwhile, investor tensions about the turbulent geopolitical climate and seemingly-growing divide between the US and its allies continue to grow as many banks have operations internationally.
Goldman Sachs and Morgan Stanley are showing good signs and have a track record of strong earnings performance. Still, investors looking to play earnings should remain aware of mixed market sentiment and potentially muted management outlook for the rest of the year.
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How Will Goldman Sachs (GS) and Morgan Stanley (MS) Perform After Big Banks Earnings?
Earnings season is now in full session after JP Morgan (JPM - Free Report) and Citigroup (C - Free Report) beat earnings on Friday while Wells Fargo (WFC - Free Report) stumbled. Bank of America (BAC - Free Report) and Blackstone (BLK - Free Report) were the headliners on Monday, both surpassing expectations and boosting investor confidence.
BAC stock gained over 2.4% in morning trading Monday after reporting earnings of $0.63 on revenues of $22.6 billion. These surpassed our Zacks Consensus Estimates of $0.57 and $22.5 billion respectively. EPS numbers represented 43% year-over-year growth while revenue numbers slipped 1% from the year-ago quarter.
BLK’s adjusted earnings per share of $6.66 outpaced our estimate by six cents. Revenue numbers were equally solid, coming in at $3.61 billion and beating by $160 million. These figures grew 28% and 11% over the same period a year ago.
Moving forward, investor eyes will turn to Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) , which are slated to report earnings Tuesday and Wednesday before market open. Will they build on the momentum or bring recession worries back into the spotlight? Let’s take a look.
Goldman Sachs
According to our latest estimates, analysts see GS reporting $4.67 in earnings per share on revenues of $8.71 billion, which would represent 18.2% and 10.4% growth year-over-year. Investors should note that the company has seen three negative and two positive earnings estimate revisions in the last 60 days. This mixed revision activity has left GS sitting at a Zacks Rank #3 (Hold).
Shares of GS are down 11.1% year-to-date as the firm has been hammered by lower client-activity levels in equity, fixed income, currency and commodity markets, along with political uncertainty in the US. While this might seem scary, it isn’t Goldman-specific, as industry competitors are down an average of over 8% year-to-date on many of the same headwinds.
GS has established a track record of strong earnings performance, averaging a positive surprise of 18.1% over the last four quarters. The company has beaten expectations on 9 of its last 10 earnings reports and remains well positioned for growth, given its strong investment banking operations and solid client franchise. Its business diversification also leaves the firm well-hedged against many of the concerns that have recently plagued the financial industry.
Morgan Stanley
Latest estimates have MS coming in at $1.08 in earnings per share on $9.96 billion in revenue, which would represent 24% and 4.8% respective growth over the same period a year ago. In the last 60 days, the company has seen four negative estimate revisions for the current quarter and current fiscal year, with one coming in the last week for both periods. However, analysts have also revised estimates upward for next quarter and the next fiscal year, again leaving overall sentiment mixed and keeping MS at a Zacks Rank #3 (Hold).
MS stock has performed in line with competitors, losing 8.4% in value year-to-date. Again, it has felt the same pains that its competitors have, including management expectations that net interest income growth will slow down, even though it grew last quarter. Still, outlook on the company has remained relatively stable as Moody’s affirmed its A3 senior debt rating in March.
Morgan Stanley is on a 10-quarter earnings beat streak, posting an average surprise of 12.9% over the last four quarters. The company has remained focused on restructuring its operations to lower balance-sheet risks and focus on its less capital-intensive businesses: wealth management and investment management. Considering the strength of the overall economy and the large proportion that trade income represents on its bottom line, MS could potentially see some solid numbers this quarter.
Outlook
Banks have seen notable benefits from the Trump administration’s corporate tax cuts along with loan growth. However, the 10-year/2-year yield curve has flattened considerably, hurting lenders through narrowing profit margins. A flattening yield signals that investors are cautious about the outlook for long term macroeconomic growth. Meanwhile, investor tensions about the turbulent geopolitical climate and seemingly-growing divide between the US and its allies continue to grow as many banks have operations internationally.
Goldman Sachs and Morgan Stanley are showing good signs and have a track record of strong earnings performance. Still, investors looking to play earnings should remain aware of mixed market sentiment and potentially muted management outlook for the rest of the year.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>