GS Stock – Goldman, Morgan Stanley Results Beat Estimates

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Goldman Sachs (GS) and Morgan Stanley (MS) posted better-than-expected results Thursday after a tough quarter for financials. Those results should support the recent rally in GS stock and MS stock as they work their way back toward breakeven on the year.

gs-stock-ms-stock-financialsGS stock and MS stock reversed trend sharply a week ago after the April swoon pulled shares in both banks to year-to-date lows — but even after that reversal, they’re still in negative territory.

Before Thursday’s move on earnings, MS stock was off 5% for the year-to-date. GS stock was faring even worse before its big earnings beat, logging a decline of 11% for 2014.

Now investors are hoping that some surprising quarterly strength in key areas at Goldman Sachs and Morgan Stanley could be just the thing to put both GS stock and MS stock on an extended run.

GS Stock Rises on Street-Beating Numbers

GS stock rose sharply Thursday after the bank’s quarterly earnings, and revenue easily exceeded analysts’ expectations.

For the first three months of the year, GS said net income fell 10% year-over-year, hurt by ongoing sleepiness in fixed income, currencies and interest-rate products. However, the company managed to offset some of the pain with cost cuts and stronger results from investment banking amid a resurgence in deal activity.

True, GS profit declined to $2.03 billion, or $4.02 per share after paying preferred dividends, but analysts polled by Thomson Reuters only projected earnings to come in at $3.45 a share.

Revenue likewise beat the Street by a comfortable margin, slipping 8% to $9.33 billion vs. estimates of $8.7 billion.

Much as the market expected, business slumped throughout GS, but a few notable exceptions to the weakness helped both results and GS stock. For example, increased mergers and acquisitions activity — especially in Europe — and an upswing in initial public offerings boosted results at Goldman Sachs’ investment banking division.

Investment banking revenue increased 13% year-over-year and and 3.6% from the fourth quarter, led by advising on deals. Equity underwriting revenue gained 12%, helped by increased IPO activity, although debt underwriting declined on a slump in commercial mortgage-related activity.

Although extreme weather conditions in much of the country lifted results from commodities trading, bonds and currencies continued to suffer from a quiet trading environment.

Regulations intended to rein in risk and the ongoing slump in fixed income trading have thrown up all sorts of obstacles for GS, and those are still headwinds for GS stock. But the latest Street-beating results should give the market confidence that the bank can manage its way through the tough times until profit engines like fixed-income trading come back.

If nothing else, the results are a big boost of confidence for anyone holding GS stock.

MS Stock Rallies on Sixth Straight Quarter of Profitability

Morgan Stanley’s makeover appears to be working, according to the latest quarterly results — and the market is showing its approval by bidding up MS stock.

The firm’s new focus on wealth management — as well as surprising strength in fixed-income and commodities trading — helped MS clobber Wall Street estimates in the first quarter.

MS said net income rose 56% to $1.51 billion, or 74 cents per share. On an adjusted basis, earnings came to 68 cents, which beat the Street forecast by 9 cents. Revenue increased 4% to $8.8 billion before accounting adjustments, topping analysts’ outlook for $8.52 billion.

MS showed strength across all major businesses, and that fact could go a long way toward getting MS stock out of the red sooner rather than later.

In the latest data point underscoring the wisdom of focusing on wealth management, MS’s wealth management revenue rose 4.4% to $3.62 billion. In another positive sign, revenue from investment banking and trading rose to $4.48 billion from $4.4 billion — no small feat when weak fixed income markets are dragging down trading results across the industry.

Like GS, Morgan Stanley’s commodities trading unit did benefit from the harsh winter, but the bank  also posted an increase in fixed income trading, which has been a soft spot for banks for several quarters now. Increased deal activity and equity underwriting also gave MS results a lift.

MS has now reported six straight profitable quarters after losing more than a billion dollars in the third quarter of 2012. True, at 8.3%, return on equity — a key measure of profitability — is still well-below the bank’s target of hitting double digits, but the trend is positive and should offer support for the MS stock price.

MS had a remarkably strong quarter at a time when many banks struggled — just take a look at earnings from JPMorgan Chase (JPM). Prospects look much improved at Morgan Stanley. Don’t be surprised if that optimism flow through to MS stock.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/04/gs-stock-ms-stock-goldman-sachs/.

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