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Will Decline in Spending Dent AmEx's (AXP) Q3 Earnings?

American Express Co. AXP is scheduled to report third-quarter 2020 earnings results on Oct 23.

The Zacks Consensus Estimate for the company’s third-quarter earnings and revenues is pegged at $2.48 per share and $36.66 billion, respectively, indicating a plunge of 33.17% and 21.21% each from the prior-year quarter’s reported figures.

Factors Likely to Impact Q3 Results

Discount revenues, the company’s largest revenue line, are likely to have declined due to a decrease in the average discount rate. The average discount rate is likely to have fallen due to a shift in the spending mix to non-Travel & Entertainment (T&E) categories.

The company is also likely to have seen COVID-19-related weakness in Other fees and commissions and Other revenues, primarily due to lower travel-related revenues.

Further, net interest income is expected to have softened in the third quarter, primarily due to lower average loan. Per management, the company lent total card member loans worth $61.4 billion within three months, down 16.1% year over year. Both the sub categories of loans, namely U.S. consumer card member loans and small business card member loans witnessed declines.

Card Member rewards expense is likely to have decreased, primarily driven by lower billed business as a result of the COVID-19 impact.

Card Member services expense might have also declined, primarily owing to limited usage of travel-related benefits as a result of COVID-19.

The company halted traditional advertising, marketing, sponsorships and customer acquisition activities, thereby reducing associated expenses.

Earnings Surprise History

The company boasts an attractive earnings surprise history. Its bottom line beat estimates in each of the last four quarters, of the average being 35.56%. This is depicted in the chart below:

American Express Company Price and EPS Surprise

American Express Company Price and EPS Surprise
American Express Company Price and EPS Surprise

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

Here is what our quantitative model predicts:

Our proven model does not conclusively predict an 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. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: American Express has an Earnings ESP of -0.18%.

Zacks Rank: American Express currently has a Zacks Rank #4 (Sell).

Stocks to Consider

Some stocks worth considering with the apt combination of elements to surpass estimates this reporting cycle are as follows:

Green Dot Corporation GDOT has an Earnings ESP of +5.88% and a Zacks Rank #3, currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Payments Inc. GPN has an Earnings ESP of +3.25% and a Zacks Rank of 3 at present.

Mastercard Inc MA has an Earnings ESP of +2.24% and is Zacks #3 Ranked.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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American Express Company (AXP) : Free Stock Analysis Report
Mastercard Incorporated (MA) : Free Stock Analysis Report
Global Payments Inc. (GPN) : Free Stock Analysis Report
Green Dot Corporation (GDOT) : Free Stock Analysis Report
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