The Goldman Sachs Group, Inc. (GS) is scheduled to report its second-quarter 2014 results before the opening bell on Tuesday, Jul 15.
In the last quarter, this banking giant delivered a 17.20% positive earnings surprise on the back of robust financial advisory revenues. With this, Goldman recorded positive earnings surprises in the last four quarters with an average beat of 19.03%.
Will Goldman be able to keep the earnings streak alive after combating the challenges that the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q2 Results
Banks’ efforts to settle lawsuits related to shoddy pre-crisis mortgage practices remained the key trend in the quarter. This was accompanied by dumping unprofitable businesses and concentrating on those with strong potential.
Then again, continued expense control and stable balance sheets should act as tailwinds in the quarter. A favorable equity and asset market backdrop as well as encouraging macroeconomic factors – falling unemployment, a progressive housing sector and flexible monetary policy – are likely to have lent some support to the financials.
However, a set of dampeners – dreary consumer and corporate activities, soft trading volumes and sluggish mortgage banking activities – are likely to drag earnings. Moreover, litigation costs related to recent settlements might drive down profitability.
Most importantly, this banking giant failed to impress analysts with its level of activities during the quarter. The weakness surrounding the industry and the company's financials, which are highly susceptible to such negatives forced many analysts to significantly lower their earnings estimates. The Zacks Consensus Estimate has moved down by 3.5% to $3.07 per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Goldman is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Goldman is -0.65%. This is because the Most Accurate estimate of $3.05 is below the Zacks Consensus Estimate of $3.07.
Zacks Rank: Goldman’s Zacks Rank #3 (Hold), however, increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The earnings ESP for The PNC Financial Services Group, Inc. (PNC) is +0.57% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its second-quarter results on Jul 16.
Fifth Third Bancorp (FITB) has an earnings ESP of +4.44% and carries a Zacks Rank #3 (Hold). It is scheduled to report its second-quarter results on Jul 17.
Capital One Financial Corporation (COF) has an earnings ESP of +1.12% and carries a Zacks Rank #2 (Buy). It is scheduled to report its second-quarter results on Jul 17.
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