in a wall street (and america for that matter) of lowered expectations ... Everybody Beats.
That's the long and short of it. The news this morning is Morgan Stanley (MS) beat consensus earnings estimates, sending its shares higher. Setting aside for a second that MS revenue and earnings were down -9% and -12% respectively year-over-year, let's look at the parlor game being played by Old Wall analysts belying those "beats."
The first thing to note? In order to manufacture these earnings beats, Wall Street's downward revisions are sometimes massive. Over the past year, big bank consensus earnings estimates dropped anywhere between -9% and -29%. Check out the charts below showing consensus earnings estimates (the red line depicting the steady decline in those estimates.)
Morgan Stanley
- EPS 2Q16: $0.75
- Consensus EPS Estimate: $0.59
- Consensus EPS Revision: -29% in past year
Citigroup
- EPS 2Q16: $1.24
- Consensus EPS Estimate: $1.10
- Consensus EPS Revision: -25% in past year
Bank of America
- EPS 2Q16: $0.36
- Consensus EPS Estimate: $0.33
- Consensus EPS Revision: -23% in past year
JPMorgan
- EPS 2Q16: $1.55
- Consensus EPS Estimate: $1.43
- Consensus EPS Revision: -13% in past year
Wells Fargo
- EPS 2Q16: $1.01
- Consensus EPS Estimate: $1.01
- Consensus EPS Revision: -9.9% in past year
None of this suggests big bank impropriety. However, these five stocks are up between +2% and +9% in the past month on significantly downgraded earnings beats.
Sad...
Stock performance of the banks above over past month
The game goes on and on.
Don't expect it to stop. Another way to beat on earnings is to reduce the share count via stock buybacks. (Note: Executive bonuses are often tied to EPS growth, so therein lies another motivation to reduce the share count and goose earnings.)
- JPM said it was increasing its planned buyback to $10.6 billion from $6.4B announced last year
- Citigroup plans a huge $8.6 billion buyback
- BofA lifted its expected payout in the next year to about $8.1 billion, including a $5B buyback
- Morgan Stanley's buyback is now $3.5 billion, up from $2.5B previously announced
