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AmEx (AXP) to Report Q4 Earnings: Is a Beat in the Cards?

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American Express Co. (AXP - Free Report) is scheduled to report fourth-quarter 2020 and full-year earnings results on Jan 26.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings and revenues is pegged at $1.26 per share and $9.4 billion, respectively, indicating a decline of 37.93% and 17.3% each from the corresponding prior-year quarter’s reported figures.

Factors to Impact Q4 Results

Reflective of the overall softness in the global economyy and weak spending trends in its customer segments, the company’s billed business suffered in the first nine months of 2020. However, the company is likely to have witnessed a steady improvement in its overall billed business in the to-be reported quarter as consumer spending revived from earlier levels .

Within the proprietary billed business, non-travel and entertainment (T&E) spend, which historically accounted for a large portion of the company’s billed business, is likely to have shown greater recovery than the T&E spend. Lower billed business volumes are likely to have affected Card Member loans and receivables. The Zacks Consensus Estimate for card billed business is pegged at $288 billion, implying an 11.4% fall from the year-ago quarter’s reported figure.

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 decrease is expected to have been driven by a shift in spend mix to non-T&E categories, although the erosion is likely to have been benign (compared with the second and the third quarter) owing to the modest improvement in T&E spend. The Zacks Consensus Estimate for discount revenues stands at $5.76 billion, suggesting a 15.6% decline from the year-ago period’s reported figure while the same for the average discount rate is pegged at 2.26%, hinting at a decrease from 2.36% reported in the year-ago quarter.

Net interest income might have declined due to lower average loans and reduced benchmark interest rates. The Zacks Consensus Estimate for net interest income is pegged at $1.92 billion, indicating a 15.9% fall from the year-ago quarter’s reported figure.

Card Member rewards, Card Member services and business development expenses are generally correlated to billings or are variables based on usage. These are likely to have declined in the to-be-reported quarter due to the tepid billing volumes and lower usage of travel-related benefits.

During the quarter to be reported, operating expenses might have declined as the company deepens its focus on reducing these.  Marketing expenses are likely to have shot up as the company is making investments in initiatives to support customers, such as enhancements made to add value propositions for many of its card products and its largest ever Shop Small campaign.

Earnings Surprise History

The company boasts an attractive earnings surprise record. Its bottom line beat estimates in three of the last four quarters (and missed in one), the average surprise being 33.82%. 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-eps-surprise | American Express Company Quote

Here is what our quantitative model predicts:

Our proven model predicts 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, which is 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 4.00%.

Zacks Rank: American Express currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

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

AXOS FINANCIAL Inc. (AX - Free Report) has an Earnings ESP of +4.94% and is presently Zacks #3 Ranked. The company is scheduled to release fourth-quarter earnings on Jan 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Houlihan Lokey, Inc. (HLI - Free Report) is set to report fourth-quarter earnings on Jan 28. The stock currently has a Zacks Rank #2 and an Earnings ESP of +5.40%.

Moodys Corporation (MCO - Free Report) is slated to announce fourth-quarter earnings on Feb 10. The stock has an Earnings ESP of +3.78% and is a #3 Ranked player, presently.

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