Go back a year ago, and try to imagine what the reaction would be if Meredith Whitney came out and lowered the earnings estimates of Goldman Sachs Group (GS). The answer would be, “Not again! The financials will never rally again!” But that was then.
Meredith Whitney did lower earnings estimates for Goldman Sachs Group (GS) on Tuesday, but the call itself is not what is important. What may be the most important takeaway here is that having doom and gloom does not work forever, and interpreting analyst “downgrades” ahead might be more art than science. Goldman Sachs and other key financial stocks closed up for the day when the market was mixed at best and prone to profit-taking.
Before you think this is just a Meredith Whitney bashing, it is not. For starters, Whitney’s cut for Q4-2009 was down to $5.50 EPS from $6.00 EPS as a prior target, still above the consensus target of the time at $5.42 EPS. And for 2010, her target came down to $19.20 EPS from $19.56. Consensus from Thomson Reuters was $19.13 yesterday. The long and short of it is that Whitney is actually still above consensus.
One other notion here to consider is that Meredith Whitney just cut her estimates on both Goldman Sachs and on Morgan Stanley (MS) on December 17. On that day, Goldman Sachs shares fell over 2% to $160.93, but the stock snapped back immediately. Whitney’s call on Goldman Sachs yesterday did not take the stock down for more than a few minutes until the market got to digest the implications. In December, Whitney also cut estimates on JPMorgan Chase & Co. (JPM). Both JPMorgan and Morgan Stanley have snapped back from any Whitney-related pullbacks.
In fairness, Meredith Whitney did make a bullish call at least as a trading call on Goldman Sachs in 2009. It was July 13 when she raised her rating to a Trading Buy when shares had been close to $140.00; and she went back to a Neutral in mid-October at the peak ahead of earnings when the stock was at $190.
When you make a career over being one of the first and most vocal about the coming gloom and doom, it is easy to get caught up in not being able to change your hat. Many analysts and market watchers get bogged down only by directional thinking, meaning if the numbers are lower or the growth is lower that it is always bad. The problem is that the market has shown over and over how it is willing to endorse less-bad news over and over since last March. Sometimes you can’t just look at an action about what analysts are actually saying. You have to consider what they are trying to say.
Speaking of interpreting market doom and gloom, look no further than Nouriel Roubini. He was very instrumental in his calls against the coming bubble. He made his career on being Dr. Doom. But even when he stayed negative throughout most of 2009, his comments were less-bad and less-bad all throughout. The market often reacts differently versus the actual calls and opinions of economists and market pundits even if those pundits were right in their analysis of the actual business.
We’ll get to see who is right soon enough, as earnings season is days away from kicking off: Goldman Sachs and Morgan Stanley both are scheduled to report earnings on Thursday, January 21, 2009. J.P. Morgan Chase & Co is set to report on Friday, January 15, 2010.
