Big banks are set to report earnings this week with J.P. Morgan (JPM) and Goldman Sachs (GS) leading the way. Wall Street is officially expecting earnings per share of $1.35 and $1.12 but as so often noted on Breakout the financial juggernauts have so many discretionary items available to them that it’s hard to make heads or tails of what Wall Street is ever really expecting.
In the attached clip, Leigh Drogen of Estimize says his proprietary earnings estimate platform is able to gather a wider sample of estimates than the traditional system of using published research reports.
“We allow hedge fund analysts, independents analysts, independent investors and corporate finance professionals to make earnings estimates,” Drogen explains, “what ends up happening is you get a better, more accurate earnings number instead of the sandbagged numbers that you often see.”
By “sandbagged” Drogen means the standard practice of companies giving low estimates then beating by a couple pennies. The big surprise this quarter may be Goldman failing to surprise at all. Goldman has beaten earnings expectations by an average of 27% for the last four reported quarters. Estimize’s estimates suggest that streak is about to end with a thud, most likely because of the bank having to set aside money for fines or weak activity on the trading desk.
“You’re seeing the Estimize consensus number below Wall Street and that’s a really big thing because Goldman has absolutely crushed estimates each of the last 8 quarters and the Estimize consensus has been more accurate all 8 quarters. This is the first quarter that you’re actually seeing those estimates below the Street.”
In other words the smart money is actually expecting Goldman to come in slightly lower than Wall Street’s official estimates. Whether that happens because Goldman sets aside cash in anticipation of future fines or trading desk failures, it could be the first time Goldman has disappointed in quite a while.
With the markets suddenly looking a little toppy it’s hard to believe traders would be too happy to see a light quarter from two of Wall Street’s super heavyweights.
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