Global electronic payment processor — American Express Co. (AXP) or AmEx is scheduled to release second-quarter 2014 financial results after the closing bell on Jul 29.
In the last reported quarter, the company delivered a positive earnings surprise of 2.3%, while the four-quarter trailing average beat is pegged at 2.2%. Let us see how things are shaping up for this announcement.
Our proven model shows that AmEx is not likely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: The Most Accurate estimate of $1.38 per share is at par with the Zacks Consensus Estimate of AmEx. Hence, the Expected Surprise Prediction or Earnings ESP, which is the difference between the aforementioned estimates,is 0.00%.
Zacks Rank: AmEx has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Sell-rated stocks (#4 and 5) are never considered going into the earnings announcement.
Though AmEx’s Zacks Rank #2 increases the predictive power of ESP, the company’s nil ESP makes surprise prediction difficult.
What is Directing an Indifferent Earnings?
On the financial front, AmEx retains adequate liquidity, which is also reflected in its superior capital ratios and ability to return excess capital through incremental share repurchases and dividends, overall resulting in an above-average payout ratio.
A diversified portfolio and higher spending on the company’s cards have helped improve operations and default rates in the past quarters. With 1% year-over-year rise in expenses in 2013 and first-quarter 2014, management expects to limit annual operating expenses to less than 3% in 2014. AmEx is also expected to benefit from the recent strategic alliances and divestments. These are likely to strengthen the company’s network and global position.
However, AmEx faces significant challenges from regulations, litigations and stiff competition. Notably, any adverse outcome of the ongoing litigation by the U.S. Department of Justice (DoJ) may weigh on the company’s financials. All these potential risks currently keep us at bay.
Other Stocks to Consider
Here are some other 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:
Qiwi Plc (QIWI) has Earnings ESP of 4.8% and a Zacks Rank #1 (Strong Buy).
Mercury General Corp. (MCY) hasEarnings ESP of +14.9% and a Zacks Rank #1.
Moody’s Corp. (MCO) has Earnings ESP of +6.1% and a Zacks Rank #3 (Hold).