American Express Co. (AXP - Analyst Report) (AmEx) is scheduled to release its first-quarter 2014 financial results after the closing bell on Apr 16. Let’s have a look at the company’s earnings prediction right before the announcement.
What Sort of Surprise?
Our proven model shows that AmEx is unlikely to beat earnings as it lacks the required combination of two key ingredients.
Zacks ESP: AmEx has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $1.29 per share and the Zacks Consensus Estimate of $1.30, is -0.8%.
Zacks Rank: AmEx has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Sell-rated stocks (#4 and 5) are kept under the radar and are never considered going into the earnings announcement.
The combination of AmEx’s Zacks Rank #3 and -0.8% ESP deter us from being convinced as to whether earnings will beat or miss expectations on Apr 16.
What is Directing Indifferent Earnings?
AmEx benefits from improved credit trends, new business initiatives, strong capital ratios and return on equity (ROE) as well as stable ratings. The positivity is backed by a trailing four-quarter average surprise beat of 2.6%, although the fourth-quarter 2013 generated a negative surprise of 0.8% due to higher litigation costs.
Meanwhile, lower borrowing on cards along with rising payment of outstanding debt may likely raise interest expense and impede growth of loan fee income, thereby hampering the top line. Although the company is keeping expenses in check, the impact of regulations and lawsuits and higher loan loss provisions, given lower lending reserves, raises potential risks.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this coming quarter:
Portfolio Recovery Associates Inc. (PRAA - Analyst Report) , earnings ESP of +2.33% and a Zacks Rank #2 (Buy).
TD Ameritrade Holding Corp. (AMTD - Analyst Report) , earnings ESP of +3.03% and a Zacks Rank #2.
CBOE Holdings Inc. (CBOE - Analyst Report) , earnings ESP of +3.70% and a Zacks Rank #3 (Hold).
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