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American Express (AXP) to Report Q2 Earnings: What Awaits?

Zacks Equity Research

American Express Co. AXP is scheduled to report its second-quarter 2019 earningson Jul 19, after market close. Earnings should benefit from increase in revenues and gains from the company’s investment strategy.

The company’s growth strategy revolves around three key objectives – growing market share, driving scale by adding customers and merchants; and strengthening relevance by increasing engagement with card members, merchants and partners, especially digital engagement.

Let’s see the factors affecting the company’s Q2 results:

American Express’ total revenues should benefit from higher income driven by spending, and lending and service fees. The Zacks Consensus Estimate for revenues is $10.82 billion, up 8.2% year over year.

We expect to see an increase in the number of customers served during the second quarter. Average spending on cards is likely to rise as members opt for card upgrades and additional products. Its customer referral program, Member Get Member, which successfully attracted new clients in 2018, is expected to benefit in the to-be-reported quarter. This should drive the company’s discount revenues and fees, which contributed to 80% of total revenues.

The company’s co-brand partnership with the likes of Hilton, Amazon, Delta, Air Canada and others must have driven increased business volumes thus accruing to overall revenues.

The company’s international business is also doing well, which, in turn, should drive international billings.

We expect the company’s net interest income to gain as the Federal interest rates remained unchanged.

Customer engagement expense component, comprising rewards, card member services and marketing, is growing faster than revenues. We expect the trend to affect to-be-reported quarter’s results as well. Though American Express is seeing good returns from targeted enhancements made in its customer value proposition, it will create some margin pressure.

Moreover, operating expenses are expected to grow at a slower rate than revenues due to operating expense leverage. Overall, margin compression created by higher customer engagement expenses is likely to be partially offset by operating expense leverage.

Here is What Our Quantitative Model Predicts:

Our proven model does not conclusively show that American Express is likely to beat earnings estimates this season because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to do so. But that is not the case here.

Earnings ESP: American Express has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Express carries a Zacks Rank #3, which increases the predictive power of ESP. However, its 0.00% ESP leaves our surprise prediction inconclusive.

Earnings Surprise Trend

The company has an impressive earnings history, having surpassed estimates in three of the four reported quarters, with the average positive surprise being 0.84%. This is depicted in the graph below:

American Express Company Price and EPS Surprise

American Express Company Price and EPS Surprise

American Express Company price-eps-surprise | American Express Company Quote

Stocks That Warrant a Look

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

LendingClub Corporation LC has an Earnings ESP of +0.85% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Moody’s Corp. MCO has an Earnings ESP of +0.65% and holds a Zacks Rank #2.

TCG BDC, Inc. CGBD has an Earnings ESP of +0.76% and a Zacks Rank #2.

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