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We just got a big slug of economic data, and overall the results were positive. After an enormous bounce in retail sales for May, June’s reading came in much better than expected once again. The Philly Fed Manufacturing report was also better than expected but fell slightly from June’s reading. The one fly in the ointment was Initial Jobless Claims. While this week’s reading declined for a record 15th straight week, it did miss expectations. Continuing Claims, however, managed to come in slightly below forecasts. All in all, this data looked positive at the top line.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, the latest earnings reports, global economic data, trends related to the COVID-19 outbreak, and much more.
In the whole ‘game’ of quarterly earnings, the general strategy for companies is that whatever earnings you report, just make sure it’s better than expected. Companies that beat estimates tend to see better share price reactions while companies that miss EPS forecasts tend to see adverse reactions to their stock prices. That’s the general pattern, but there are always exceptions, especially among the major brokers.
Take Goldman Sachs (GS), for example. Yesterday the company reported quarterly EPS $6.26 per share, which was $2.35 above the consensus expectation of $3.91, or an EPS beat of over 60%. Looking through our Earnings Explorer tool, yesterday’s report from GS was the third-largest EPS beat for the stock since at least 2001. Given the magnitude of the beat, how much do you think GS was up yesterday? 5%? 10%? How about 1.4%. That’s right. The third-largest EPS beat for the company in practically 20 years resulted in a gain for the stock of just 1.4%!
Looking through the Earnings Explorer at Goldman’s largest EPS beats shows an interesting trend. Including yesterday, on the earnings reaction day of the ten largest EPS beats for GS, the stock’s average change was a decline of 0.1% (median: +0.2%) with gains only six times. Even more interesting is the fact that the company’s two largest EPS beats in April 2009 and April 2011 were met with selling.
We also looked at Goldman’s stock price reaction following the nine times it has missed EPS forecasts (or reported inline EPS). Of the nine occurrences since 2001, the stock’s average one-day reaction to earnings was a gain of 0.7% (median: +0.2%). On an average basis, at least, Goldman has derived no benefit to its stock from reporting blowout numbers.
