We expect The Goldman Sachs Group, Inc (GS) to beat earnings expectations when it reports fourth-quarter 2013 results before the opening bell on Thursday, Jan 16, 2014.
Can Goldman Sachs Group Inc (NYSE:GS) Why a Likely Positive Surprise?
Our proven model shows that Goldman has the right combination of two key ingredients to beat earnings.
Zacks ESP: The Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.13% for Goldman. This is because the Most Accurate estimate is $4.28 and the Zacks Consensus Estimate is currently pegged at $4.15.
Zacks Rank #3 (Hold): Goldman’s Zacks Rank #3 increases the predictive power of its ESP. Notably, stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the to-be-reported quarter.
Goldman Sachs Group Inc (NYSE:GS) Drivers of Better-than-Expected Earnings
Wall Street banks have been trying to counter weakness in revenues and strict regulatory requirements with intense expense control measures. Goldman is no exception in this case. The company’s last quarter earnings beat was primarily driven by controlled costs and we expect it to resort to the same measure even in this quarter.
Also, we expect Goldman Sachs Group Inc (NYSE:GS) to benefit from its well-managed global franchise and strong capital base. Last December, the Federal Reserve approved the company’s re-submitted capital plan, which it had conditionally approved in Mar 2013. Thanks to Goldman’s healthy capital position, meeting higher regulatory requirements should not be a concern.
Together, the company’s ability to contain costs, capital adequacy and solid investment banking, aided by capital market recovery, would support its earnings.
However, top-line pressures remain concerns for Goldman. Trading continues to suffer on Wall Street for a variety of reasons. The Volcker Rule’s restriction of proprietary trading, reduced foreign exchange trading volume and a slump in commodities prices are a few of them. We believe that Goldman will be among the most affected as it derives the majority of its revenues from the Institutional Client Services segment.
Also, on the macroeconomic level, the near zero interest rate scenario will continue to keep interest income and net interest margin under pressure. A little tightening up of the Federal Reserve’s quantitative easing will not be sufficient to push up the interest rates.
Despite the expected pressure on the top-line, analysts have turned bullish on the stock ahead of the fourth quarter results. As a result, the Zacks Consensus Estimate for the quarter has increased 1.5% to $4.18 per share over the last 7 days.
Other Stocks to Consider
Goldman is not the only bank looking optimistic this earnings season. Here are some other banks you may want to consider as our model shows these have the right combination of elements to post an earnings beat this season:
SunTrust Banks, Inc. (STI) has an earnings ESP of +1.43% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its fourth quarter results on Jan 17.
State Street Corporation (STT) has an earnings ESP of +3.36% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Jan 24.
The earnings ESP for Northern Trust Corp. (NTRS) is +1.32% and it carries a Zacks Rank #3. The company is expected to release fourth-quarter results on Jan 22.