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What's in Store for Goldman (GS) this Earnings Season?

The Goldman Sachs Group, Inc.GS is scheduled to report second-quarter 2016 results before the opening bell on Jul 19.

Last quarter, Goldman had delivered a positive earnings surprise of 4.3% on the back of effective cost control. However, lower revenues, weak equity markets and a reduced number of completed mergers and acquisitions acted as headwinds.

Notably, Goldman has recorded an average positive surprise of 12.58% for the trailing four quarters as depicted in the chart below:

GOLDMAN SACHS Price and EPS Surprise

GOLDMAN SACHS Price and EPS Surprise | GOLDMAN SACHS Quote

Factors to Influence Q2 Results

Market Volatility: Being an investment bank, Goldman is exposed to extreme market volatility. Therefore, Goldman is expected to be affected by the persistent market swings being experienced since the beginning of 2016.

Top-line Woes Persist: Efforts to strengthen the top line by focusing more on non-interest income have not been entirely successful. However, trading activity was impressive in the first two months of the quarter. While client activity was weaker in equities, it was higher for fixed income. It is expected that Brexit and other macro concerns may offset the early momentum. Notably, about one-fifth of its revenue is generated from its UK-based operations, so Goldman is expected to be negatively impacted due to the Brexit.

Further, investment banking business is likely to remain weak as persistent decline in M&A activities and a weakening IPO market in the wake of global economic concerns continue. Additionally, continued shift towards electronic platforms may have weighed on investment banking.

Margin Pressure Continues: Despite the rise in loan demand, the top line will continue to remain under pressure due to the effect of the still low rate environment on net interest income.

Strong Expense Management: For Goldman, disciplined compensation levels and focus on non-compensation expenses have contributed to pre-tax margin expansion of 440 basis points since 2012. Therefore, continuation of expense management is expected in the quarter.

Notably, this banking giant has failed to impress analysts with its level of activities during the quarter. Amid the industry-wide weakness, which is anticipated to affect the company's financials, several analysts significantly lowered their earnings estimates. The Zacks Consensus Estimate fell around 2% to $3.01 per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Goldman is likely to beat the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Goldman is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $3.01.

Zacks Rank: Though Goldman's Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our proven model they have the right combination of elements to post an earnings beat this quarter.

Comerica Incorporated CMA has an earnings ESP of +1.47% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 19.

The earnings ESP for Regions Financial Corporation RF is +5.00% and it carries a Zacks Rank #3. The company is expected to release its second-quarter results on Jul 19.

Federated Investors, Inc. FII has an earnings ESP of +2.13% and carries a Zacks Rank #3. It is slated to report its second-quarter results on Jul 28.

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COMERICA INC (CMA): Free Stock Analysis Report

REGIONS FINL CP (RF): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

FEDERATED INVST (FII): 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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