Earnings Preview: Barclays Sets Expectations On Bank of America Corp (BAC), Goldman Sachs Group Inc (GS) and Citigroup Inc (C)


With quarterly earnings around the corner, Jason Goldberg, senior analyst at Barclays, discusses the banking sector going into earnings season. The analyst offers an overview of what to expect from banking giants such as Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS) and Citigroup Inc (NYSE:C).

As usual, we like to include the analyst’s trackrecord when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks.com, Goldberg has a yearly average return of 1.6% and a 55% success rate. Goldberg is ranked #1421 out of 4018 analysts.

Bank of America Corp

With Bank of America preparing to release earnings on July 18, Jason Goldberg weighed in with his prediction:

We are lowering our 2Q16 EPS estimate by $0.03 to $0.34 due primarily to a higher than initially expected drag on NII from FAS 91 ($0.8bn). Our 2Q16 EPS estimate is $0.02 below consensus of $0.36. Investors’ focus this quarter will likely be on its interest rate exposure, efficiency ratio, and capital markets commentary post EU referendum results. Additionally, we were hoping for a larger CCAR 2016 share repurchase request. We’ll look for more color on its future redeployment plans.

In 2Q16 we expect it to record a $250mn legal accrual, $225mn securities gains and a roughly $800mn FAS 91 drag on NII. In addition, we could see some drag from derivative marks in 2Q16, as some of the counterparty CDS spreads widened toward the end of the quarter. This compares to 1Q16 specials that included $1.2bn FAS 91 drag, $226mn gain on sales of debt securities, $388m litigation charges, $126mn MSR hedge gain and a $42mn representation and warranties cost.

The analyst rates Bank of America shares an Equal Weight, with a price target of $19, which represents a potential upside of 44% from where the stock is currently trading.

Out of the 27 analysts polled by TipRanks, 19 rate Bank of America stock a Buy, 7 rate the stock a Hold and 1 recommends a Sell. With a return potential of 37.5%, the stock’s consensus target price stands at $18.10.

Goldman Sachs Group Inc

Goldman Sachs is scheduled to report its earnings results before market open on Tuesday, July 19.

Ahead of earnings, Goldberg lowers his estimates:

We are lowering our 2Q16 EPS estimate by $0.36 to $3.05, below current consensus of $3.09. Our 2016 and 2017 EPS estimates are now $14.60 (-$1.05) and $17.00 (-$0.05), respectively. These reductions reflect our expectations for another subdued, albeit sequentially improved, quarter for investment banking and trading. Although we expect revenues to remain pressured and be below levels from a year ago, we do look for results across all four of its businesses (IB, ICS, I&L and IM) to improve when compared to soft 1Q16 results. Sequentially, we believe GS has benefited from more open capital markets (more IPOs, more high yield issuance) and a rebound in public equities (benefiting I&L and IM). We expect GS’s comp ratio to remain relatively stable with 1Q16 at 42%, however total dollar total expenses are projected to be down 10% y-o-y as GS continues to combat lower revenues with expense cuts (1Q16 expenses were down 28% y-o-y). We also are interested in its IB pipeline health, especially with the recent U.K. Referendum, and whether it expects to make up lost ground in 2H16.”

The analyst rates Goldman Sachs an Equal Weight, with a price target of $210, which represents a potential upside of 40% from where the stock is currently trading.

Out of the 16 analysts polled by TipRanks, 8 rate Goldman Sachs stock a Buy, while 8 rate the stock a Hold. With a return potential of 30%, the stock’s consensus target price stands at $195.15.

Citigroup Inc

As Citigroup is scheduled to report second quarter financial results before market open on July 15, 2016, Goldberg reiterated an Overweight rating on the stock, with a price target of $60, which represents a potential upside of 43% from where the stock is currently trading.

Goldberg commented:

We are lowering our 2Q16 EPS estimate by $0.17 to $1.09, reflecting more pressure on C’s fee businesses than originally anticipated. In addition, we are lowering our 2016 (-$0.25 to $4.65) and 2017 (-$0.10 to $5.40) EPS estimates due to lower NIM projections. In June, C guided 2Q16 net income to be flat with 1Q16 ($3.5bn), highlighting a few moving parts within fee income. Sequentially, trading and investment banking revenues are expected to be slightly higher, while declines in Citi holdings and GCB revenues are expected to offset (both business included one-time gains in 1Q16). Importantly, partially alleviating the reduction in one-time gains for the quarter, we look for C’s repositioning costs (pulled expenses forward in 1Q16) and loan loss provision (lowered its credit cost estimate tied to energy) to decline. Expenses should remain in check and are expected to decline in the back half of 2016. Net, we expect net income results to be similar to 1Q16, but to be of better quality.

Out of the 22 analysts polled by TipRanks, 14 rate Citigroup stock a Buy, while 8 rate the stock a Hold. With a return potential of 35%, the stock’s consensus target price stands at $56.56.