Why Analysts Cut Goldman Sachs’ EPS Estimates
Will Goldman Sachs' Stock Recover after Cuts in 1Q16 Estimates?
Analysts cut Goldman Sachs’ 1Q16 EPS estimates
Goldman Sachs (GS), the investment banking giant, is scheduled to report its 1Q16 earnings on April 19. As per Bloomberg reports, in the last four weeks, 22 Wall Street analysts have chopped off 22%, or $0.94, from Goldman’s EPS (earnings per share) estimates. These cuts could lead to the company beating estimates, and thus, a rally in stock prices post earnings.
Rationale for the cut
Typically, analysts adjust their estimates before earnings based on management and executives’ commentary at investor conferences. Goldman Sachs doesn’t provide any mid-quarter guidance ahead of earnings. However, executives from the bank spoke to analysts privately on market conditions and expectations. Meanwhile, rivals Morgan Stanley (MS), Bank of America (BAC), and Citigroup (C) have been very vocal about expected weakness during the upcoming earnings.
Estimates for these banks have been revised by ~3%, as they provided weak earnings guidance last month. Goldman relies more on activities like investment banking, trading, and lending, which are affected by market volatility.
Financial markets have been extremely turbulent since the beginning of 2016. Traditionally, the first quarter of the year is a strong period for the securities business, as investors tend to put their annual investment strategies in place this time of year. However, volatile markets have kept clients away from issuing debt or equity, launching IPOs, or making acquisitions. Goldman Sachs and Morgan Stanley are the largest investment banks (VFH) in the United States and are thus expected to be hit hardest by the market swings we’ve been seeing since the beginning of the year.
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