Market Update
Financial behemoth Goldman Sachs (GS) reports first-quarter earnings before the bell Tuesday. A consensus of Wall Street projections forecasts the firm to post earnings-per-share of $0.75.
Analysts expect income from the fixed-income, currency, and commodity division to be strong after a cyclically weak fourth quarter, while growth in the investment banking vertical will be closely watched.
Among big financial firms that have declared earnings, results from Bank of America (BAC) fell short of analyst estimates, J.P. Morgan (JPM) was tempered by weakness in the consumer banking business, and Citigroup (C) beat forecasts slightly.
Goldman last month also said it had received regulatory approval and would buy back preferred shares sold to Warren Buffett's Berkshire Hathaway (BRK.B) at the height of the financial crisis. While the buyback may come at a cost, it would reinforce the view that Goldman Sachs' financial position since then has improved steadily. Morningstar analyst Michael Wong thinks that post the 2008 restructuring of its business model, the firm now promises a moderate-risk, above-average return proposition, as opposed to its "high-risk, high-return days" before the crisis.
Goldman Sachs shares trade marginally short of Wong's fair value estimate of $180 per share.
Also declaring results before the bell is Johnson & Johnson (JNJ). Wall Street estimates an earnings per share of $1.25, compared to $1.62 in the prior-year quarter.
During the earnings call, investors will key in on management comments regarding the contentious issue of product recalls, which continue to plague the health-care major.
A positive for the company going forward would be the resolution of J&J's long-running row with Merck (MRK) over rights to immunology drugs Remicade and Simponi--a settlement that many analysts viewed at least slightly in favor of J&J.
Management is also expected to shed light on possible acquisitions--Swiss device maker Synthes on Monday confirmed it was in talks with J&J for a possible takeover. Media reports put the deal at about $20 billion. In a note on Monday, analyst Julie Stralow wrote: "We think Synthes might be a better fit for J&J [than other possible acquisition target Smith & Nephew] since its focus on trauma and spine would be complementary to J&J's traditional orthopedic stronghold in knees and hips. Also, Synthes has been an early beneficiary of emerging-market growth, especially in its trauma products, so that could be catching the eye of J&J."
Johnson & Johnson shares are undervalued, according to analyst Damien Conover, who pegs the firm's fair value at $75 per share and thinks the company's stable stream of cash flows and new pipeline drugs should offset near-term headwinds in the long run.