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What's in Store for American Express (AXP) in Q4 Earnings?

Zacks Equity Research

American Express Co.’s AXP fourth-quarter results, scheduled to be announced on Jan 17, 2019, are expected to gain from an increase in revenues. Top-line growth of the company should be driven by higher spending by consumers, small business, and corporate Card Members, as well as higher loan volumes and fee income. Investments made by the company in new benefits, services and digital capabilities should lead to earnings growth in the fourth quarter.

Provisions for losses increased through the first nine months of 2018 and the trend is expected to have continued in the fourth quarter as well. This increase will be driven by growth in its loan portfolio and a higher lending write-off rate, which should be partly offset by stable delinquency rates.

Segment-wise, the company’s results are expected to be as follows:

Global Consumer Services Group: The segment’s net revenues are expected to gain from higher loans, Card Member spending and fee income. We expect to see an increase in provisions for losses, led by growth in its loan portfolio and increase in lending write-off rate, which is likely to be offset to some extent by moderating delinquency rates.

Global Commercial Services: This segment should gain from an increase in Card Member spending. Provisions for losses are also likely to grow, primarily due to the charge portfolio.

Global Merchant and Network Services: This segment should gain from higher propriety Card Member spending, which is expected to be offset to some extent by an increase in average discount rate and lower revenues from network partners.  

A decline in tax rate, courtesy of the 2017 Tax Cuts and Jobs Act, should aid its net margins. Moreover, with the resumption of share buyback in the second quarter, the company should have continued buyback activity in the fourth quarter. This is likely to aid the bottom-line growth of the company.

Consolidated expenses should see an increase in customer engagement expense component, which is composed of rewards, card member services and marketing, and is growing a little faster than revenues. We expect the trend to have continued in the to-be reported quarter as well. Though the company is seeing a good payback from the 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, the margin compression created by higher customer engagement expenses should be partially offset by operating expense leverage.

Management Guidance

The company expects full-year 2018 revenues to increase in the range of 9-10% and adjusted EPS within $7.30-$7.40.

Earnings Surprise Trend

The company has an impressive earnings history, having surpassed estimates in each of the four reported quarters, with average positive surprise of 4.4%. This is depicted in the graph below:

American Express Company Price and EPS Surprise

American Express Company Price and EPS Surprise | American Express Company Quote

Why a Likely Positive Surprise?
Our proven model indicates that the chances of American Express to beat the Zacks Consensus Estimate are high, as it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better. You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter.

Earnings ESP: The Earnings ESP for American Express is +0.78%.

Zacks Rank: The company currently has a Zacks Rank #3, which increases the predictive power of ESP.

Other Stocks That Warrant a Look

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

Synchrony Financial SYF has an Earnings ESP of +4.62% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings on Jan 25. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FleetCor Technologies, Inc. FLT has an Earnings ESP of +0.25% and holds a Zacks Rank #3. The company is expected to report fourth-quarter results on Feb 14.

Visa Inc. V has an Earnings ESP of +1.21% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings on Jan 30.

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