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Can AmEx (AXP) Q2 Earnings Beat on Network Volumes Boost?

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American Express Company (AXP - Free Report) is set to beat on earnings for the second quarter of 2023, the results for which are scheduled to be released on Jul 21, before the opening bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for second-quarter earnings per share of $2.81 has witnessed one upward revision in the past week against one movement in the opposite direction. The estimate is indicative of a 9.3% increase from the year-ago quarter’s reported earnings of $2.57 per share.

The Zacks Consensus Estimate for revenues is pegged at $15.4 billion, suggesting a rise of 15.1% from the year-ago quarter’s reported figure.

American Express’ earnings beat estimates in two of the trailing four quarters and missed twice, the average surprise being negative 0.9%. This is depicted in the graph below.

American Express Company Price and EPS Surprise

American Express Company Price and EPS Surprise

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

What the Quantitative Model Suggests

Our proven model predicts a likely 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 precisely the case here.

Earnings ESP: American Express has an Earnings ESP of +2.08%. This is because the Most Accurate Estimate is currently pegged at $2.86 per share, higher than the Zacks Consensus Estimate of $2.81. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: American Express currently has a Zacks Rank #3.

Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at AXP’s previous-quarter performance first.

Q1 Earnings Rewind

In the last reported quarter, the globally integrated payments company’s adjusted earnings per share of $2.40 missed the Zacks Consensus Estimate by 9.1%, primarily due to higher operating and customer engagement costs. It set aside more money for potential losses as inflationary pressure and a high-interest-rate environment put pressure on customers. Nevertheless, the negatives were partially offset by continued business momentum, better volumes and higher Card Member spending.

Now, let us see how things have shaped up prior to the second-quarter earnings announcement.

Factors Driving Q2 Performance

American Express is likely to have witnessed improved network volumes in the second quarter, a trend seen over the last several quarters. It is expected to have increased due to higher total billed business and processed volumes. Our estimate for second-quarter total network volumes indicates 17.6% year-over-year growth.

A somewhat resilient consumer spending level is likely to have supported Discount revenues, AXP’s largest revenue driver. Our estimate for second-quarter Discount revenues indicates more than 9% year-over-year growth.

Travel and Entertainment (T&E) is expected to have witnessed continued growth in the second quarter. As such, T&E-related spending is likely to have increased in the quarter under review. Fees, commissions and other revenues are expected to have improved on the back of an uptick in travel-related revenues. Also, International Card Services is expected to have witnessed an almost 17% increase from the year-ago period.

Cards-in-force is likely to have witnessed an uptick in the quarter under review. Our estimate for total cards-in-force indicates an almost 10% year-over-year increase. The average fee per card is expected to have increased 11.5% year over year in the second quarter. Our estimate for total Worldwide Card Member Loans also indicates continuous growth in this period.

American Express’ interest income, the second-largest revenue contributor, is likely to have risen on higher loan disbursements. Our estimate for AXP’s interest income suggests an upside of almost 57% from the year-ago reported figure. Further, our estimate for Global Merchant and Network Services’ pre-tax income indicates a 7.5% year-over-year increase.

The above-mentioned factors are likely to have positioned American Express for not only year-over-year growth but also a likely earnings beat. However, the rising expenses, card member rewards, marketing and business development costs are expected to have reduced margins, partially offsetting the positives.

Our estimate suggests total expenses to have witnessed more than 11% year-over-year increase in the quarter. Also, a hefty increase in provision for credit losses is likely to have impacted the results. We expect rainy-day funds to have more than doubled in the second quarter. 

Other Stocks That Warrant a Look

Here are some other companies worth considering from the broader finance space, as our model shows that these too have the right combination of elements to beat on earnings this time around:

American Equity Investment Life Holding Company (AEL - Free Report) has an Earnings ESP of +1.70% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Equity Investment’s bottom line for the to-be-reported quarter is pegged at $1.67 per share, which indicates a 70.4% increase from the year-ago period. The consensus estimate for AEL’s revenues is pegged at $555 million.

Aon plc (AON - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank of 3.

The Zacks Consensus Estimate for AON’s bottom line for the to-be-reported quarter is pegged at $2.82 per share, indicating 7.2% year-over-year growth. The estimate witnessed two upward estimate revisions in the past 30 days against none in the opposite direction. AON beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 1.6%.

Ares Management Corporation (ARES - Free Report) has an Earnings ESP of +2.18% and a Zacks Rank of 2.

The Zacks Consensus Estimate for Ares Management’s bottom line for the to-be-reported quarter is pegged at 84 cents per share, suggesting a 13.5% year-over-year increase. The consensus estimate for its revenues is pegged at $730 million. ARES beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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