Can AmEx (AXP) Q3 Earnings Beat on Network Volumes Boost?
American Express Company AXP is set to beat on earnings for the third quarter of 2023, the results for which are scheduled to be released on Oct 20, before the opening bell.
What Do the Estimates Say?
The Zacks Consensus Estimate for third-quarter earnings per share of $2.96 has witnessed one upward revision in the past week against one movement in the opposite direction. The estimate is indicative of a 19.8% increase from the year-ago quarter’s reported earnings of $2.47 per share.
The Zacks Consensus Estimate for revenues is pegged at $15.4 billion, suggesting a rise of 13.7% from the year-ago quarter’s reported figure.
American Express’ earnings beat estimates in two of the trailing four quarters and missed twice. This is depicted in the graph below.
American Express Company Price and EPS Surprise
American Express Company price-eps-surprise | American Express Company Quote
What the Quantitative Model Suggests
Our proven model predicts a likely earnings beat for American Express this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is precisely the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP: American Express has anEarnings ESP of +0.60%. This is because the Most Accurate Estimate is currently pegged at $2.98 per share, higher than the Zacks Consensus Estimate of $2.96. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: American Express currently has a Zacks Rank #3.
Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at AXP’s previous-quarter performance first.
Q2 Earnings Rewind
In the last reported quarter, the globally integrated payments company’s adjusted earnings per share of $2.89 beat the Zacks Consensus Estimate by 3.2%, thanks to continued business momentum, better volumes and higher card member spending. Increased compensation costs and higher operating and customer engagement costs partially offset the positives.
Now, let’s see how things have shaped up prior to the third-quarter earnings announcement.
Factors Driving Q3 Performance
AmEx is expected to have experienced enhanced network volumes in the third quarter, continuing a trend observed over the past several quarters. This increase is likely attributable to higher total billed business and processed volumes. The Zacks Consensus Estimate for third-quarter total network volumes indicates 9.5% year-over-year growth from $394.4 billion, whereas our estimate suggests a 12.7% increase.
Discount revenues, a significant revenue driver for American Express, are likely to have been supported by a relatively stable consumer spending level. The Zacks Consensus Estimate for third-quarter Discount revenues indicates nearly 10% year-over-year growth, whereas our estimate predicts an 11% rise.
In the third quarter, Travel and Entertainment (T&E) is anticipated to have sustained its growth trend, resulting in increased T&E-related spending. Additionally, fees, commissions, and other revenues are expected to have improved, driven by an upturn in travel-related income. Also, the Zacks Consensus Estimate for third-quarter International Card Services revenues suggests an almost 16% increase from the year-ago period’s $2.3 billion, whereas our model’s estimate is pegged at nearly $2.7 billion.
Cards-in-force is likely to have witnessed an uptick in the quarter under review. The Zacks Consensus Estimate for third-quarter total cards-in-force indicates a more than 7% year-over-year increase, whereas our estimate suggests a nearly 9% year-over-year increase. Both the consensus mark and our estimate for the average fee per card indicate 13.2% year-over-year growth in the third quarter. Our estimate for total Worldwide Card Member Loans also implies continuous growth in this period.
American Express’ interest income, the second-largest revenue contributor, is likely to have risen on higher loan disbursements. The Zacks Consensus Estimate for AXP’s interest income suggests an upside of almost 47% from the year-ago reported figure of $3.4 billion, whereas our model predicts a nearly 48% increase. Further, our estimate for Global Merchant and Network Services’ pre-tax income indicates a 15.6% year-over-year increase.
The factors mentioned above are expected to position American Express for both year-over-year growth and a potential earnings beat. However, an increase in expenses, card member rewards, marketing and business development costs are likely to have dampened profit margins, somewhat offsetting the positive aspects.
Our estimate suggests total expenses to have witnessed a nearly 12% year-over-year increase in the quarter. Also, a hefty provision for credit losses is likely to have impacted the results. We expect rainy-day funds to have increased around 40% year over year in the third quarter.
Other Stocks That Warrant a Look
Here are some other companies worth considering from the broader Finance space, as our model shows that these, too, have the right combination of elements to beat on earnings this time around:
Credit Acceptance Corporation CACC has an Earnings ESP of +18.15% and is a Zacks #3 Ranked player.
The Zacks Consensus Estimate for Credit Acceptance’s bottom line for the to-be-reported quarter is pegged at $7.03 per share, indicating 8.3% year-over-year growth. It has witnessed one upward estimate revision in the past 30 days against none in the opposite direction. The consensus estimate for CACC’s revenues is pegged at $486.8 million, suggesting a 5.8% increase from a year ago.
OneMain Holdings, Inc. OMF has an Earnings ESP of +2.37% and a Zacks Rank of 3.
The Zacks Consensus Estimate for OneMain’s bottom line for the to-be-reported quarter is pegged at $1.50 per share. The consensus estimate for revenues is pegged at $908.4 million, indicating a 1.5% increase from a year ago. OMF beat earnings estimates in two of the past four quarters and missed twice.
Enova International, Inc. ENVA has an Earnings ESP of +2.26% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Enova International’s bottom line for the to-be-reported quarter is pegged at $2 per share, suggesting a 14.9% year-over-year increase. The estimate remained stable over the past week. ENVA beat earnings estimates in all the past four quarters, with an average surprise of 7.6%.
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American Express Company (AXP) : Free Stock Analysis Report
Credit Acceptance Corporation (CACC) : Free Stock Analysis Report
Enova International, Inc. (ENVA) : Free Stock Analysis Report
OneMain Holdings, Inc. (OMF) : Free Stock Analysis Report
