Goldman Sachs vs. Morgan Stanley: Which Earnings Report Will Be Best?

Investment banking powers Goldman Sachs GS and Morgan Stanley MS are set to report their third-quarter earnings tomorrow, in the face of somewhat uncertain times for the financial sector.

Major banks help paint a picture of the overall health of the financial space, as they make up almost half of the finance sector's total earnings. Commercial lending growth has been falling throughout the banking world, putting pressure on several key companies.

In the latest round of bank earnings last week , firms like Citigroup C and JPMorgan JPM failed to significantly increase their lending volume, while also experiencing a decrease in the quality of their loan portfolios.

Goldman Sachs and Morgan Stanley will look to buck this trend and fight back against an increase in passive investing, which has also hurt their businesses and returns.

Goldman Sachs and Morgan Stanley are set to report their third-quarter earnings before markets open on Tuesday, Oct. 17.

Both of these companies currently sport Zacks Rank #3 (Hold) rankings, but the question still remains: which investment banking giant's earnings report will be best? Let's take a closer look to find out.

Current Estimates

Heading into Goldman Sachs' report, our Zacks Consensus Estimates call for earnings of $4.50 per share and revenues of $7.95 billion, which would mark year-over-year declines of 11.65% and 6.49%, respectively.

Morgan Stanley, on the other hand, looks poised to experience modest quarterly gains. For one, the Zacks Consensus Estimate calls for Morgan Stanley's earnings to gain 1.25% to reach $0.80 per share. The company is also projected to hit $9.06 billion in revenue, which would represent year-over-year growth of 0.43%.

Both companies face negative industry trends, and investors might not only care about revenue and earnings figures. But Goldman Sachs is projected to see substantial declines-and has received five downward earnings estimate revisions within the last 60 days-while Morgan Stanley is expected to experience gains.

Earnings Whispers

Like always, investors will be interested to find out if Goldman Sachs and Morgan Stanley beat expectations. One way to gauge whether a company is poised to beat earnings estimates is by looking at the Zacks Earnings ESP.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst revisions. This is done because, generally speaking, if an analyst reevaluates their earnings estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

Goldman Sachs' Earnings ESP currently rests at 0.28%, while Morgan Stanley's Earnings ESP is 0.25%. Because the Earnings ESP's surprise prediction capabilities are most effective with stocks ranked at Zacks Rank #3 (Hold) or better, both companies current Zacks Ranks and positive ESP might give investors some confidence.

Share Price Trends

Another thing that investors might think about taking into account ahead of earnings is the recent movement of the companies' stock.

If a stock has moved up significantly before a report, earnings and revenue beats might not send shares much higher, because investors believe those beats are already built into the current price. On the opposite end of this spectrum, even a small beat for a company whose stock has been down or flat could send shares soaring.

Shares of Goldman Sachs closed 1.60% higher on Monday and now rest only 5% below their 52-week high. The company's stock price has climbed over 7% since the start of September.

Morgan Stanley closed up over 1.30% and sits just 2.39% beneath its 52-week high of $50.14 per share. Shares of Morgan Stanley have surged around 6% higher over the last month and a half.

This positive movement does not hold much predicative power, and it certainly does not determine what quarterly numbers the firms will actually post. But with strong upward movement in recent weeks from both stocks, any small beats might already be priced into their current stock prices, while a miss could send shares down big-time.

Bottom Line

Although Morgan Stanley's earnings and revenue gains are expected to be relatively small, it seems like it will surely be the more attractive choice for investors hoping to see earnings and revenue growth. Goldman Sachs is projected to experience a double-digit earnings decline and over a 6% drop in sales, which could add significant pressure.

With the rest of the categories as somewhat of a toss-up, it seems Morgan Stanley holds the edge over its counterpart. Regardless, we'll have to wait and see!

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Morgan Stanley (MS): Free Stock Analysis Report

Goldman Sachs Group, Inc. (The) (GS): Free Stock Analysis Report

J P Morgan Chase & Co (JPM): Free Stock Analysis Report

Citigroup Inc. (C): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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