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What's in Store for American Express (AXP) in Q1 Earnings?

Zacks Equity Research

American Express Co.’s AXP first-quarter 2019 earnings, scheduled to be released on Apr 18, after market close, are likely to gain from the company’s investment strategy.

The 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.

In the fourth quarter, the company’s earnings of $1.74 per share missed estimates by 3.33% due to lower-than-expected spending on cards.

Let’s see the factors affecting the company’s Q1.

We expect the company’s total revenues to gain from an increase in the number of customers served during the first quarter. Average spending on cards is is likely to rise as members opt for card upgrades and additional products. Its customer referral program Member Get Member, which successfully attracted new members in 2018, is expected to benefit to-be reported quarter’s results as well.

The company is also actively forging co-brand partnerships with the likes of Hilton, Amazon, Delta and Air Canada, which must have driven increased business volumes thus accruing to the overall revenues.

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

Global Consumer Services Group’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 should gain from an increase in Card Member spending. Provisions for losses are also likely to grow, primarily due to the charge portfolio.

At the company’s Global Merchant and Network Services segment, we expect to see higher propriety Card Member spending, which is likely to be offset to some extent by an increase in average discount rate and lower revenues from network partners.  

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 the company 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 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 -1.12%. 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 -1.12% ESP makes surprise prediction difficult.

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 2.9%. 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

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:

Synchrony Financial SYF has an Earnings ESP of +2.61% and a Zacks Rank #3. The company is set to report first-quarter earnings on Apr 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Total System Services, Inc. TSS has an Earnings ESP of +1.44% and holds a Zacks Rank #3.

Diebold Nixdorf, Inc. DBD has an Earnings ESP of +5.71% and a Zacks Rank #2.

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Diebold Nixdorf, Incorporated (DBD) : Free Stock Analysis Report
 
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American Express Company (AXP) : Free Stock Analysis Report
 
Total System Services, Inc. (TSS) : Free Stock Analysis Report
 
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