Goldman Sachs is strong, Netflix raises questions: What we learned from earnings this week

Published Fri, Apr 19 202412:48 PM EDTUpdated Fri, Apr 19 20242:37 PM EDT

Earnings season kicked off in earnest this week, with some notable results including those from some of the biggest U.S. banks and a major entertainment company. So far, more than 14% of S & P 500 companies have reported. Of those companies, 73.6% have beaten earnings expectations, FactSet data shows. Here's a look at some of the biggest reports of the week and what analysts think — along with a look at potential implications for the broader market. Investment banks doing well, BofA not so much The major banks that posted results this week — Goldman Sachs , Morgan Stanley and Bank of America — beat earnings expectations. Nonetheless, that didn't translate into a positive stock reaction for all three of them. Bank of America shares fell more than 3% despite the company beating on both top and bottom lines. Net interest income, a key metric of how much money a bank makes from loans, was $14.19 billion, above the $13.93 billion StreetAccount estimate. However, net interest income was lower on a yearly basis. Finance chief Alastair Borthwick also told analysts during a post-earnings conference call that net interest income will likely decline in the second quarter due to drops in wealth management, before potentially rebounding later in 2024. To be sure, Wells Fargo's Mike Mayo said Bank of America's first-quarter results were "not too surprising" and benefited from improved capital market conditions. He remains confident in the bank's reputation, deposits and credit quality in relation to its big bank peers. "Overall, BAC is a Goliath at a time when Goliath is winning," Mayo wrote in a Tuesday note. Mayo has an overweight rating on Bank of America. BAC 5D mountain BAC 5-day chart Meanwhile, Goldman Sachs and Morgan Stanley shares climbed around 3% and 2.5% each following their earnings announcements. For the week, they are up 3.7% and 6%, respectively. Analysts from JPMorgan, Bank of America and Wells Fargo all raised their price targets on Goldman following its positive results. Wells Fargo's Mayo said the firm is "likely best-of-breed" among its peers. The bank's pivot away from commercial banking into a renewed emphasis on its asset and wealth management segments is a positive for Goldman, per Bank of America analyst Ebrahim Poonawala. He named Goldman as one of the best names to own thanks to its exposure to a broader uptick in investment banking activity, as well as secular trends including more financing opportunities for artificial intelligence projects and a growth in private credit. Mayo prefers Goldman over Morgan Stanley, for which he holds an equal weight rating on shares. The company posted a growth in wealth inflows and revenue. However, Mayo remains concerned about the flat NII in the wealth segment, keeping him on the sidelines. UnitedHealth crushes estimates, but cyberattack still an overhang UnitedHealth's results easily exceeded analyst expectations, sending shares soaring more than 14%. That would be its biggest weekly gain since April 2020, when it rallied 15%. However, management noted the ongoing fallout of the cyberattack on its subsidiary Change Healthcare will result in an impact on full-year earnings of between $1.15 and $1.35 per share. "So while core MLR [medical loss ratio] in Q1 was slightly higher than expected, the outlook for the year seems largely inline with expectations, alleviating investor concerns around runaway medical cost trends and the risk from that to EPS," Deutsche analyst George Hill said in a Thursday note. He reiterated his buy rating on the stock, and slightly increased his price target to $562 from $545. UNH 5D mountain UNH 5-day chart Netflix concerns Netflix had a strong start to 2024 across the board, but its weaker-than-expected full-year revenue outlook weighed on sentiment. The streaming service also announced it would stop reporting quarterly subscriber numbers — a key metric watched by traders ahead of the report — and average revenue per membership starting next year. Shares fell on Friday more than 8% and were headed for their worst day since July 2023. "Overall, NFLX's 1Q was very clean, but we'd expect pushback from the 2024 revenue growth outlook, ongoing concerns about slowdown of Paid Sharing benefits & advertising monetization, & valuation," JPMorgan's Doug Anmuth wrote in a Friday note. He reiterated his overweight rating and $650 price target on shares. Bank of America also remains bullish on shares. Analyst Jessica Reif Ehrlich kept her buy rating and $700 price target, which she said is supported by its increased visibility in growth drivers and strength in innovation. Not all firms were as optimistic, however. Goldman Sachs retained its neutral rating on the stock, while Canaccord Genuity downgraded shares to hold from buy on slower forecasted growth. The reduced subscriber disclosures "add to uncertainty," the firm said. Mixed earnings picture Although nearly three-quarters of the reported earnings so far have topped expectations, the broader picture is more muddled. Profit growth is on track to disappoint, according to FactSet data. The blended earnings growth rate, which considers the reports already out and the estimates from those still pending, sits at just 0.16%. Analysts expected year-over-year profit expansion of more than 3% heading into the season, per FactSet. Revenue beats have also lagged earnings, with just 61% of companies exceeding top-line expectations. First-quarter results "have been a mostly negative catalyst for large caps, with below-typical sales beat rates. Demand has come in lighter than expected, though 'higher-end' consumers remain resilient with record household wealth and cash balances," wrote Wells Fargo strategist Chris Harvey. He forecasts more downward revisions to forward guidance, versus raises, from the companies scheduled to report going forward. Next week, about 150 S & P 500 names are slated to report, including Microsoft, Exxon Mobil, Alphabet and Tesla.