Investors are ready to see another huge quarter from

Goldman Sachs

(GS) - Get Report


The giant brokerage is always among the best performing on Wall Street. But after

Lehman Bros.


posted a 27% profit jump Tuesday, some observers expect Goldman to surpass even its own high standards when it posts its second quarter. The brokerage is due to report results Thursday morning.

"Because Lehman was able to restructure its business lines to overseas and equity, reducing the impact of domestic and debt, it was able to show extremely strong earnings," says Richard Bove, an analyst at Punk Ziegel. "If you apply those concepts to Goldman, what you can see is Goldman is far more internationally positioned than Lehman. Goldman is also far more equity-oriented than Lehman is ... and has a stronger position in the M&A business than Lehman."

"At the same point, Goldman is not as involved in the mortgage sector as Lehman is," Bove says. "From those core characteristics, you have to assume that Goldman is going to have much stronger earnings."

While Bove's official quarterly earnings estimate for the New York brokerage behemoth is $4.76 a share, he is now assuming that the company will earn "well above" $5 a share for the quarter, given Lehman's blowout results.

Bear Stearns


also reports earnings on Thursday.

Morgan Stanley

(MS) - Get Report

is due to report next week.

Investors will also be paying close attention to how the subprime shakeout affects earnings at Goldman, Bear Stearns and Morgan Stanley, particularly after it put a slight crimp in Lehman's revenue.

Dozens of lenders to homebuyers with poor credit histories have gone out of business in the last year, due to a spike in delinquencies and defaults on recent loans.

Lehman said revenue from its fixed income business dropped as sales of securitized products, including residential mortgages, fell from first-quarter levels.

Investors are fretting that higher interest rates will "put a clamp on to some of the private equity or M&A activity that has been buoyed by lower rates," says Matt Kelmon, a portfolio manager at Kelmoore Investment Co. in Palo Alto, Calif.

But Kelmon says that shouldn't affect Goldman's stock too much.

"People get worried about a new level of interest rates, then after two to three weeks accept them and realize historically we still have very low rates," he says. "The fact that Lehman did well around the world bodes really well for Goldman. I expect very good numbers from Goldman." Kelmoore owns positions in Goldman.

Still, some observers say that while Goldman's second quarter should be solid, the results will not be as good as those from the company's first quarter.

Analysts on average are still expecting the company to post earnings of $4.79 a share. That figure is up just a penny from Goldman's reported earnings in the year-earlier quarter and down 28% from this year's first quarter, according to Thomson Financial. Goldman is expected to report revenue of $10.1 billion.

"Results for Goldman are going to be lower this quarter than last quarter," says Mark Lane, an analyst at William Blair & Co. "You're dealing with more normalized results in a very lumpy area in principle investments. Trading was not as good as the first quarter. But overall it's still a very robust environment."

In the three months ending in February, Goldman reported earnings of $6.67 a share, compared with $5.08 a year earlier -- surpassing estimates by 34% and surprising Wall Street.

Goldman said revenue during the quarter from trading and principal investments -- its largest contributor -- jumped 35% from the first quarter of 2006 and 42% from the fourth quarter to $9.42 billion.

The company also had several one-time gains in the first quarter, including a $227 million gain from its investment in Industrial and Commercial Bank of China, which went public last year, and a $500 million gain related to accounting changes, among other things, that are unlikely to be repeated.

Bove added that the commodities market, where Goldman has a significant business, was weak during the second quarter.