uploads///GS EPS Revisions

Did Lower Estimates Help with Goldman Sachs’ Earnings Beat?


Apr. 22 2016, Updated 3:06 p.m. ET

Goldman Sachs cut estimates in the last month

In the last four weeks, 22 Wall Street analysts dropped 22% or $0.94 from Goldman’s EPS (earning per share) estimates. These sharp cuts could be a big reason for the company’s beating estimates, leading to a stock price rally.

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. Executives from the bank, however, spoke to analysts privately about market conditions and expectations. Meanwhile, rivals Morgan Stanley (MS), Bank of America (BAC), and Citigroup (C) were very vocal about expected weakness in 1Q16 earnings.

Estimates for these banks (XLF) were revised ~3% after they have provided weak earnings guidance earlier 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. However, volatile markets have kept clients away from issuing debt or equity, launching IPOs, or making acquisitions.

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