NEW YORK (TheStreet) -- The table below indicates which banks are most likely to provide an earnings surprise (upward or downward) based on prior earnings estimates versus actual earnings over the last 11 quarters since 2011.
Investors can utilize the projected fiscal year earnings estimates and price target/return calculations to either hold long-term positions on more stable bank stocks or short positions on more volatile stocks.
Of the 11 large banks to report first-quarter 2014 earnings over the next week, Bank of America (BAC - Get Report), Morgan Stanley (MS - Get Report) and Goldman Sachs (GS - Get Report) have the most volatile estimates versus actual earnings. All three of these banks had huge quarterly variances (greater than 20%) in over half the quarters reported since 2011. The wide swings in analyst's forecasts with actual earnings give these stocks the greatest chance of an earnings surprise, either positive or negative for the first quarter.
Additionally, Citigroup (C - Get Report), Capital One (COF - Get Report) and Morgan Stanley (MS - Get Report) had three or more missed estimated in the last 11 quarters, which makes them vulnerable to a downside surprise. JPMorgan Chase (JPM - Get Report) , which reported Friday, once again missed earnings estimates. Bank of America and Citigroup had the largest downward revisions in the last 90 days.
On the opposite side, Wells Fargo (WFC - Get Report), which also reported Friday, BB&T Corp. (BBT - Get Report) and U.S. Bancorp (USB - Get Report) have some of the smallest variance of estimates with actual earnings and are most likely to be at or near what analysts' forecasted for these banks. Also, none of these banks had swings of greater than 20% in any one quarter since 2011. PNC and Wells Fargo are the only banks in the following list that have had upward revisions in the last 90 days.
So given this information above and from the table below, which banks offer the best opportunity for investors to cash in on this quarter's earnings season?
The list below cites those banks with the most potential for earnings surprises (up or down) this quarter with potential short-term options action are:
- JPMorgan Chase reported Friday, missing bottom-line estimates by 12 cents; earnings had been revised downward by 5% over the last 90 days
- Goldman Sachs -- Highest spread from best beat percentage to worst miss percentage (almost 500%); six of 11 quarterly estimates varied by more than +/- 20%
- Capital One -- Lowest percentage meet or beat estimates of the prior 11 quarters with 63.6%
- Morgan Stanley -- Highest number quarterly variances with eight of 11 quarters differing by more than +/- 20%
- Bank of America -- Highest downward percentage (83%) in 90 days revisions
The banks forecasted with the greatest opportunity for stock returns (and long-term holds) are:
- Citigroup: +54.4%
- JPMorgan Chase: +53.4%
- Goldman Sachs: +47.1%
- Capital One: +38.3%
- PNC Bank: +27.9%
The safest plays that are the least volatile and modest returns are:
- PNC Bank: +27.9% - Upside beat of 5.2%; with prior Q1 beats of 50%
- Wells Fargo: +27.0% - Upside beat of 2.2% with prior Q1 beats of 3.7%
- Fifth Third Bank (FITB - Get Report): +21.8% - Average beat for all quarters was 16%
- BB&T: +16.9% - Less the 2% variance from analyst estimates over the last 11 quarters
- U.S. Bancorp: +15.5% - This bank had no earnings misses in the last 11 quarters, the only bank to do so.
At the time of publication the author had positions in BAC, C and WFC.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.