American Express (AXP): Earnings Beat To Continue In Q2?

Global electronic payment processor American Express Co. (NYSE:AXP) is scheduled to release second-quarter financial results after the closing bell on Jul 20.

In the last reported quarter, the company beat the earnings estimate by 6.62%. Moreover, the company posted a positive earnings surprise in three out of the last four quarters, with an average beat of 4.23%. Let’s see how things are shaping up for this announcement.

Factors at Play

Second-quarter results will see the impact of a stronger U.S. dollar. We also expect to see healthy loan growth and favorable credit performance in the quarter.

The bottom line will gain from a reduction in operating expenses as the estimated $1 billion gain on the Costco (NASDAQ:COST) portfolio sale will be recorded as a benefit in operating expenses.

Earnings will, however, suffer from a higher level of investment spending and modest restructuring charge. Lower gas and airline ticket prices also remain headwinds for both the Global Corporate segment and U.S. consumer segments.

Revenues for the second quarter will expectedly grow on an increase in interest income from strong loan growth, and higher card fees from its U.S. Delta, Platinum and Gold portfolios. Revenue growth, however, may see a dent from higher cash rebate rewards, and incentives that the company pays to both its co-brand partners and clients.

The company will also incur restructuring charges to reduce costs. In the first quarter, the company incurred $84 million in restructuring charges.

A strong balance sheet will enable the company to return a substantial amount of capital to shareholders via share buyback, which in turn will lift the bottom line. But will this translate into an earnings beat?

Earnings Whispers

Our proven model does not conclusively show that AmEx is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate of AmEX is pegged at $1.92 per share, a penny below the Zacks Consensus Estimate. The Earnings ESP is thus -0.52%.

Zacks Rank: AmEx carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes our surprise prediction difficult.

AMER EXPRESS CO Price and EPS Surprise

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Global Payments Inc. (NYSE:GPN) has an Earnings ESP of +1.47% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 28.

MarketAxess Holdings Inc. (NASDAQ:MKTX) has an earnings ESP of +4.94% and a Zacks Rank #1. The company is scheduled to report second-quarter earnings results on Jul 28.

Moody’s Corporation (NYSE:MCO) has an Earnings ESP of +8.87% and a Zacks Rank #3. The company is scheduled to report second-quarter earnings results on Jul 22.