Goldman Sachs Delivers Q3 Beat, But BMO Still Prefers Citigroup And Morgan Stanley

BMO Capital Markets thinks that while Goldman Sachs Group Inc (NYSE: GS) delivered positive EPS surprise of 24 percent in the third quarter, the brokerage continues to favor Citigroup Inc (NYSE: C) and Morgan Stanley (NYSE: MS) shares. The firm retains the Market Perform rating but slashed its price objective from $214 to $200 citing modest capital-adjusted growth.

The revised price tag implies a potential upside reward of about 15 percent from the current levels. The target price is arrived at based on two-year-forward core EPS outlook, dividends and capital adjusted growth in the next two-year period.

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Analyst James Fotheringham boosted the core EPS estimates by 8 percent from $14.24 to $15.39 for the year 2016. Similarly, for the year 2017, he lifted the estimate from $17.53 to $18.47 and for the year 2018 from $19.86 to $20.46. This reflects a 5 percent and 3 percent growth, respectively.

Analyst's Take

In a research note, the brokerage said, "Nearterm earnings upgrades (i.e., in 2016E and 2017E) are inspired by higher than previously forecast net trading revenues and expected compensation leverage; longer-term earnings upgrades (i.e., in 2017E and 2018E) stem from a lower recurring tax rate (now 28 percent) and an improved outlook for AuM growth in Investment Management."

On October 18, Goldman Sachs delivered core EPS of $4.73 for the third quarter, exceeding BMO Capital's $3.81 and consensus' $3.82 estimations. FICC trading revenue, which witnessed 49 percent year-over-year growth, was the standout.

At Time Of Writing ...

• Citi was up 1.1 percent at $49.53.
• Goldman Sachs was up 1.49 percent at $175.21.
• Morgan Stanley was up 1.07 percent at $32.67.

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