We expect The Goldman Sachs Group, Inc. GS to beat earnings expectations when it reports first-quarter 2015 results before the opening bell on Thursday, Apr 16, 2015.
Why a Likely Positive Surprise?
Our proven model shows that Goldman has the right combination of two key ingredients to beat earnings.
Positive Zacks ESP: The Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +3.16%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Goldman carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Goldman’s Zacks Rank #3 and ESP of +3.16% makes us confident of an earnings beat on Apr 16.
Factors to Influence Q1 Results
The tide of operating environment has been favorable for investment banks since the beginning of the year. The first quarter witnessed a rebound in volatility in global financial markets, which is expected to drive investment banking trading revenues in the quarter.
Fixed Income, Currency and Commodities Client Execution, which is one of major sources of Goldman’s revenues and contributes to its institutional client services revenues, should support the company’s top line given such a favorable market backdrop.
Further, we believe strong merger-and-acquisition activity during the quarter is likely to lift the investment banking fees of Goldman.
Notably, as per quarterly data compiled by Thomson Reuters, during the first quarter, Goldman continued to be in the top position in terms of market share by deal size. The company stays ahead of its competitors owing to its bigger than average deal size, reflecting the bank’s engagement in most of the largest equity underwriting deals during the quarter. In light of such a backdrop, we believe the company should benefit from the higher underwriting fees.
Further, aggressive cost control measures should contribute to the bottom line. However, we believe non-compensation expense is likely to weigh on the company’s expense base to some extent.
Activities of Goldman during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 1.9% to $4.12 per share over the last seven days.
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 Blackstone Group L.P. BX has an earnings ESP of +4.17% and carries a Zacks Rank #2. It is expected to report its first-quarter results on Apr 16.
Fifth Third Bancorp FITB has an Earnings ESP of +2.70% and a Zacks Rank #3. The company will report results on Apr 21.
The earnings ESP for Popular, Inc. BPOP is +9.86% and it carries a Zacks Rank #1. The company is scheduled to release its first-quarter results on Apr 27.
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