Goldman Sachs and Others That May Beat Earnings

By Roger Baettig | January 08 2013 3:03 PM

In this morning's Marketwatch alert on companies that may report earnings surprises for the fourth quarter, just three were expected to offer positive surprises.

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A Goldman Sachs sign is seen above their booth on the floor of the New York Stock Exchange, January 19, 2011.

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Goldman Sachs (NYSE: GS [FREE Stock Trend Analysis]) was seen beating the consensus estimate by up to 18 percent. Forest Laboratories (NASDAQ: FRX) could turn in a positive surprise of more than 11 percent, while Lennar's (NYSE: LEN) earnings may exceed analysts' expectations by almost six percent.

The analysis is based on numbers from Thomson Reuters, but with errors and stale data removed, and with estimates weighted according to the track records of individual analysts.

Goldman Sachs

This New York-based multinational investment banking firm has a market cap of more than $64 billion and a dividend yield of about 1.5 percent. Its price-to-earnings (P/E) ratio is more than the industry average, but the long-term earnings per share (EPS) growth forecast is more than 28 percent. The return on equity is only about eight percent, and the operating margin is in line with than the industry average. Shares sold short represent more than one percent the float. That is the second lowest level of short interest since last April.

Only 12 of the 31 analysts who follow the stock and were polled by Thomson/First Call recommend buying shares, while four analyst rate them at Underperform. And note that the analysts' mean price target, or where they expect the share price to go, is barely higher than the current share price. An earnings surprise likely would change that, though, prompting analysts to raise their targets.

The share price reached a 52-week high last week, and shares are now trading about 42 percent higher than six months ago. In that time, the stock has outperformed competitor J.P. Morgan Chase (NYSE: JPM) and the S&P 500, but its performance has been in line with that of Morgan Stanley (NYSE: MS). Goldman Sachs is scheduled to share its results January 16.

Forest Labs

This company is also headquartered in New York City, but it manufactures and sells branded drug products, primarily in the United States and Europe, as well as licensing European pharmaceuticals for sale in the U.S. It sports a market cap of around $9.8 billion but offers no dividend. The P/E ratio is less than the industry average, and the long-term EPS growth forecast is more than 16 percent. The operating margin is higher than the industry average, but the return on equity is about 10 percent. The short interest is about two percent of the float, after falling since September.

Of the 24 analysts surveyed, only eight rate the stock at Buy or Strong Buy. They currently believe the stock has little room for growth, as their mean price target is less than two percent higher than the current share price. That target is also less than the 52-week high reached in October.

The share price slipped from that high in October on buyout rumors, but reversed course in November on the announcement of an Alzheimer's drug deal. Shares now are trading more than 20 percent higher than a year ago. Over the past six months, the stock has underperformed larger competitors Eli Lilly (NYSE: LLY) and Pfizer (NYSE: PFE), as well as the S&P 500. Look for Forest Labs fourth-quarter report next week.

Lennar

This Miami-based homebuilder has a market cap of less than $8 billion and a dividend yield near 0.4 percent. Its return on equity is more than 19 percent, and the operating margin is a bit higher than the industry average. The long-term EPS growth forecast is more than 10 percent, while the P/E ratio is lower than the industry average. But note that the short interest was about 20 percent of the float at the mid-December settlement date.

Ten of the 26 analysts surveyed recommend buying shares, but only two rate the stock at Underperform. The current share price has overrun their mean price target. Again, an earnings surprise likely would prompt some raised price targets.

The share price has nearly doubled in the past year and reached a new multi-year high Tuesday. Over the past six months, the stock has underperformed competitors such as Hovnanian (NYSE: HOV), KB Home (NYSE: KBH) and Pulte Group (NYSE: WYN), but outperformed D.R. Horton (NYSE: DHI), Toll Brothers (NYSE: TOL) and the broader markets. Lennar steps into the earnings spotlight January 15.