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Goldman Sachs Beats But Regional Banks Are Better Buys: Cannon


Goldman Sachs (GS) became the latest big bank to beat earnings estimates today on improvements in underwriting stocks and bonds. The original member of Wall Street's unofficial secret handshake club reported net income of $4.29 a share, handily above carefully managed estimates of $3.87.

The challenge for investors is making heads or tails of what exactly is being reported. With the number of discretionary items on the average bank's income statement it can be all but impossible for the lay-person to know which banks are the real deal and which are pushing earnings with a bit of legal corporate monkey business.

Related: Despite Earnings Beat, Citigroup Has a Long Road to Recovery

Fred Cannon, chief equity strategist at KBW, has created an honor roll of banks he says are delivering earnings per share on a consistent basis since the financial crisis. Though JP Morgan (JPM) and Wells Fargo (WFC) made the 47 member list, most members are smaller regional operations that Cannon says "stuck to their knitting" during the crisis and have continued to grow earnings and produce for their shareholders year after year.

Like a proud parent, Cannon is reluctant to pick favorites, but when pushed, he offers up Prosperity Bancshares Inc (PB) and CVB Financial (CVBF) as two small operations with transparent earnings and histories of delivering value for shareholders.

It's impossible for any bank to buck the vicissitudes of the global economy entirely, but Cannon thinks the names on his honor roll in general, and these two names in particular, are focused on their core businesses in a way that could mute the impact of the next Cyprus, Greece, China or other international surprises set to hit stocks at any moment.