Will Higher Revenues Aid American Express (AXP) Q1 Earnings?

American Express Company (NYSE:AXP) is expected to report first-quarter results on Apr 18. The performance is likely to reflect gains from its four strategic focus areas — strengthening leadership in the premium consumer segment; extending leadership in commercial payments and in particular with small and medium-sized enterprises; enhancing its digital platform; and strengthening its global integrated network to provide unique value. Results should also benefit from a lower corporate tax rate.

Revenues in the to-be reported quarter should see an upside from accelerated growth in billings and continued strong growth in loans and fees. Per the Zacks Consensus Estimate, revenues net of interest expense are expected to be $8.5 billion, up 7.8% year over year.

The company has suspended its share buyback program for the first half of 2018, in an effort to build up capital. The bottom line will thus be bereft of the benefit of share buyback.

Factors Affecting Q1 Results

Growth in Billed Business: The first quarter should reflect an increase in worldwide billed business across its diverse customer segments and geographies. U.S. proprietary consumer and international proprietary consumer billings growth should remain strong. The company saw strong performance from middle market and small business customers, while large and global commercial customers grew at a more modest pace, in the last quarter and the same should be seen in the first quarter. Global Network Services billed business should grow at a slower rate over the year than the proprietary business as a result of the impact of the evolving regulatory environment in Europe and Australia. Per the Zacks Consensus Estimate card billed business is expected to be $275 billion, up 9.1% year over year.

Increase in Loan and Recievables: Card Member loan and receivables growth should be seen as the company continues to expand its relationship with existing customers and acquire new Card Members. This should have, however, led to an increase in provisions for losses, lending delinquencies and net write-off rates. The increase in delinquencies and net write-off rates were primarily due to the seasoning of recent loan vintages and a shift in mix over time toward non-cobrand lending products, which have higher write-off rates but also drive higher net interest yields.

Increase in Total Cards in Force: Total cards in force, which reflects the number of cards that are issued and outstanding, will likely increase in the first quarter. The Zacks Consensus Estimate for the same is 116 million up 4.5% year over year.

Higher Spending on Card Member Engagement: Spending on rewards, Card Member services and marketing and promotion expenses should show an uptick due to recent enhancements to rewards on the company’s U.S. Platinum products, continued strong growth in its Delta cobrand portfolio and higher levels of engagement in many of its premium services.

Here is what our quantitative model predicts:

Our proven model does not conclusively show that American Express is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: American Express has an Earning ESP of -4.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though American Express carries a Zacks Rank #3 (Hold), its negative ESP makes our surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

PJT Partners Inc. (NYSE:PJT) is expected to report first-quarter 2018 earnings results on May 1. The company has an Earnings ESP of +29.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

MoneyGram International Inc. (NASDAQ:MGI) has an Earnings ESP of +5.88% and a Zacks Rank #3. The company is expected to report first-quarter earnings results on May 3.

Moody’s Corporation (NYSE:MCO) has an Earnings ESP of +1.49% and a Zacks Rank #2. The company is expected to report first-quarter earnings results on May 4.

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