Key US Earnings Reports

Posted on | by Todd | Leave a Comment on Key US Earnings Reports

Goldman Sachs surprised to the upside with Q4 EPS announced at $5.08, which was well above the market estimate of $4.73 and nearly 4 times the EPS of $1.27 reported a year ago. This was based on quarterly earnings of $8.17 billion versus forecasts of $7.76 billion.

Like other banks in the sector, Goldman benefited from a sharp uptick in trading activity. Net revenues from the institutional client services division were up 25% from a year ago, led by a 78% increase from the fixed-income, foreign exchange and commodities unit. Goldman shares closed down $1.45 at $234.

Citigroup had a mixed report with Q4 earnings beating expectations, but missing on their revenue figures. The banking giant announced EPS of $1.14 on revenue of $17.01 billion. Analysts were expecting EPS of $1.12 on revenue of $17.26 billion.

Trading revenue was higher at $3.20 billion, but considerably below the expectations of $3.45 billion. Fixed-income revenue also missed to the downside with Q4 reported at $2.21 billion verses an expected $2.83 billion number. Shares of Citigroup closed down 1.7% at $57.40, well below the one-year high of $61.50 posted January 4th.

Shares of NETFLIX posted an all-time high of $135.15 as earnings were marginally better than expectations, but the number of new subscribers increased sharply. The on-line entertainment company announced Q4 earnings of 15 cents per share on revenue of $2.48 billion.

These numbers were slightly better than the street’s forecast of 13 cents per share on revenue of of $2.47 billion.

More importantly, NETFLIX exceeded its own subscriber growth estimates by gaining 7.05 million new subscribers versus estimates of 5.2 million. This represents the biggest quarterly gain in the company’s history and triggered the initial rally in their shares. By the close, the share price had settle back to $133.25

Banks to Deliver Low Growth

Posted on | by Leon Hinde | Leave a Comment on Banks to Deliver Low Growth

The market has priced in a better and brighter outlook for the Australian  banks during the past 6 months.

During the middle of last year, we had off-shore hedge funds shorting our banks. Concerns about capital requirements, bad debts ticking up from one-off corporate failures and concerns about the Australian property market nearing peak prices.

Six months later and the market is thinking about better underlying conditions, reduced risk of capital raising, improving credit quality from the recovery in commodity prices and better operating margins. As a result, the valuation discount has now diminished following the 20% rally in bank names.

Our base case is that the environment has not actually changed materially from where we were 6 months ago. The news flow has turned more positive but that’s about it.  The underlying issues remain the same or are intensifying, in our view.

We watch with interest the Chinese markets and in particular the risk of weaker property prices in China and the sentiment impact it will have on Australia. This is one of our key risks to Australian bank prices in 2017.

We expect low levels of credit growth due to over-leveraged household balance sheets and pressure from  regulators to improve the quality of housing lending.

At best we see the banks at full value; and our most likely investment case is for further weakness driven by a pickup in global macro risk-off sentiment.

Our bank hedge into February/March remains in place and we’re expecting share prices to remain at or slightly below current prices over the coming months. The risk for further share price weakness will likely pickup towards the middle of the year.

Chart – Global Bank ETF

Chart – Australian Bank ETF

 

 

 

 

 

RIO Tinto: Better Production Numbers

Posted on | by Todd | Leave a Comment on RIO Tinto: Better Production Numbers

Following on from our earlier report, mining giant Rio Tinto posted solid Q4 production results with several divisions slightly beating calendar year 2016 guidance and their flagship Iron Ore operations meeting expectations.

More important than the actual production results themselves has been the continued strength of the global commodity price environment, which is driving earnings expectations into a higher range.

As such, it’s reasonable to expect the increase  in cash flow from higher metal prices could see RIO surprise the market with a higher dividend or a share buyback in its upcoming annual result in February.

We expect the exceptional second half strength in Iron Ore, Coal and to a lesser degree base metals, will help to significantly boost the immediate earnings for RIO.

This increase in revenue has boosted our short-term earnings forecast, which has resulted in an increase in our near-term price target to $65.00.

 

US Banks – Technical Update

Posted on | by Leon Hinde | Leave a Comment on US Banks – Technical Update

Dow Jones large cap financials JP Morgan & Goldman Sachs were down 3.63% and 3.5% respectively in overnight trade.

The charts below show the price action rolling-over in the past few trading sessions, following the earnings results on Friday that failed to meet market expectations on the revenue front.

This will have ongoing implications for ASX banking stocks. The rally in domestic bank shares were mainly a by-product of the US banking share rally, rather than factors directly related to an earnings pickup within the Australian market.

Chart – JP Morgan

 

Chart – Goldman Sachs