CHICAGO, April 7, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JPMorgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup Inc. (NYSE: C) and Bank of America Corporation (NYSE: BAC).
Here are highlights from Wednesday's Analyst Blog:
Will Big Banks Report a Gloomy 1Q?
The first quarter earnings season is knocking at the door, and we foresee the big banks reporting a slump. Results for the banks might be significantly marred by weak trading and investment banking performances. Though the expectations are at the bear run, we will have to wait until the results are out.
Improvement in equity markets and a reduction in reserves for future losses are primarily expected to benefit the quarter's results. However, glacial-paced customer trading in fixed income, currencies and commodities are anticipated to drag down the bottom line.
Ahead of the earnings release, let's take a quick look at the estimate revision trends and the magnitude of such revisions for financial giants like JPMorgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup Inc. (NYSE: C) and Bank of America Corporation (NYSE: BAC).
Agreement of Estimate Revisions
JPMorgan: Looking at the bank's estimates revision trends, it becomes clear that a majority of analysts are in agreement with its first quarter earnings outlook. Of the 21 analysts covering the stock, 3 have lowered their estimates for the first quarter, while no upward revisions were witnessed over the last 7 days.
Goldman Sachs: 2 of the 14 analysts covering the stock have lowered their estimates for the first quarter, while no upward revisions were witnessed over the last 7 days.
Morgan Stanley: Among 19 analysts covering the stock, 4 have lowered their estimates for the to-be reported quarter, while there was no upward revision in the last 7 days.
Citigroup: Of the 17 analysts covering the stock, 3 have lowered their estimates for the first quarter, while only one moved in the opposite direction over the last 7 days.
Bank of America: 2 of the 22 analysts covering the stock have lowered their estimates for the to-be reported quarter, while no upward revisions were witnessed over the last 7 days.
Magnitude of Estimate Revisions
For JPMorgan, the Zacks Consensus Estimate for the first quarter decreased from operating earnings of $1.18 per share to $1.17 over the last 7 days. For Goldman Sachs, it deteriorated to $3.44 per share from $3.82 over the last 7 days. For Morgan Stanley and Citigroup, the Zacks Consensus Estimates were lowered to 46 cents and 9 cents from 52 cents and 10 cents, respectively, 7 days ago. However, the magnitude of Bank of America's estimate remained unchanged over the last 7 days at 29 cents.
The magnitude of the downward estimate revisions explains why adding these stocks to an investor's portfolio will not be a good decision at this point.
Dividend Hike: The Confidence Booster
Last month, the Federal Reserve released the much-awaited second round stress test results, giving many big banks the green signal for immediate actions on raising dividends.
These stress-free banks can now hike dividends and buy back shares, both of which were prohibited in the last few years on fears that they may have sufficient capital to counter another financial crisis.
However, the story was different for Bank of America. The largest U.S. bank by assets has been asked by the Fed to show even more financial strength, in case it needs to combat another financial crisis. The Fed wants Bank of America to be at least as strong as its rivals that got the approval to deploy capital.
No matter what, the approval from Federal Reserve to increase dividend payment will boost investors' confidence on some major banks.
Though lower credit costs will support results of these banks, pressure on revenues is the primary concern.
The downward estimate revision trends and the magnitude of revisions clearly indicate significant downward pressure on the shares of major banks over the near term. However, considering the upcoming dividend payouts, investments in the stocks of big banks would be rewarding for long-term investors.
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