Investment Management Earnings Preview: GS, IBKR, AMTD

Investment management (part of the broader Finance sector) performed decently over the last several quarters. Volatility in the second quarter was heightened by Brexit related uncertainties which became more pronounced from the beginning of June.

Prior to Brexit, the U.S. markets were rallying, but the stocks sold off about 5% in the next two trading days post Brexit vote. However, the markets rebounded in the last three days of the quarter with stocks regaining around 90% of the sell-off and finishing in the green. Despite the volatility, the S&P 500 recorded around 2% return following a return of 3.2% in the last week of the quarter.

Trading activity was impressive in the first two months of the quarter. While client activity was weaker in equities, it was higher for fixed income. Therefore, the early momentum is expected to remain intact despite the Brexit impact. However, investment banking business is likely to remain feeble as a persistent decline in M&A activities along with a weakening IPO market continues in the wake of global economic concerns.

Notably, per our Earnings Preview report, overall earnings for the Finance sector in second-quarter 2016 are expected to be down 3.3%.

So, let’s have a look at the three investment management stocks that are scheduled to report their earnings tomorrow.

The Goldman Sachs Group, Inc. (NYSE:GS) is slated to announce its results before the opening bell tomorrow. The company has a Zacks Rank #3 (Hold) with an Earnings ESP of 0.00%, making it difficult to conclusively predict an earnings beat this quarter. Talking about the factors impacting earnings, the first and foremost is top-line headwinds. Trading activity was impressive in the first two months of the quarter, but macro concerns may offset the early momentum. Further, the investment banking business is likely to remain weak as a persistent decline in M&A activities and a weakening IPO market continue to be concerns. Nevertheless, these are likely to be counterbalanced by disciplined expense management (read more: What's in Store for Goldman this Earnings Season?).

However, Goldman boosts a decent surprise history as indicated by the chart below:

GOLDMAN SACHS Price and EPS Surprise

GOLDMAN SACHS Price and EPS Surprise | GOLDMAN SACHS Quote

Interactive Brokers Group, Inc. (NASDAQ:IBKR) is scheduled to announce its results after the market tomorrow. The Zacks Consensus Estimate of 35 cents for the company for the upcoming release reflects a year-over-year decline of about 5.41%. Interactive Brokers’ activities during the quarter were inadequate to win analysts’ confidence, as evident from one negative revision in earnings estimates (versus no positive revision) over the last 30 days. Notably, the Zacks Consensus Estimate fell 2.8% over the same time frame.

However, our quantitative model predicts an earnings beat. The company has a Zacks Rank #3 (Hold) with an Earnings ESP of 2.86%.

Additionally, Interactive Brokers has a decent earnings surprise history, as is apparent from the chart given below:

INTERACTIVE BRK Price and EPS Surprise

INTERACTIVE BRK Price and EPS Surprise | INTERACTIVE BRK Quote

TD Ameritrade Holding Corporation (NASDAQ:AMTD) will announce its results before the market opens tomorrow. Though the June quarter is seasonally slower, TD Ameritrade should observe healthy trading activity as the quarter witnessed elevated volatility. However, expense is expected to increase slightly in the second half of the year stemming from project spending and compliance with Department of Labor's fiduciary rule. Additionally, as the Fed did not take any step in raising interest rates further, the NIM is expected to remain under strain (read more: Will Higher Costs Drag TD Ameritrade Q3 Earnings?).

Notably, the earnings surprise history for TD Ameritrade is decent.

TD AMERITRADE Price and EPS Surprise

TD AMERITRADE Price and EPS Surprise | TD AMERITRADE Quote

Irrespective of an earnings beat or miss, investors should focus on the companies’ fundamentals to make investment decisions. Therefore, don’t forget to check our full write-up on earnings releases of these stocks later.

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