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Can American Express (AXP) Pull a Surprise in Q3 Earnings?

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American Express Co. (AXP - Free Report) is scheduled to report third-quarter 2017 results on Oct 18 after market close.

Last quarter, this company surpassed the Zacks Consensus Estimate by 0.7%. However, earnings declined 30% year over year as the year-ago earnings reflected the $1.1 billion gain, recorded from the sale of Costco Wholesale Corp. brand portfolio.

Revenues came in at $8.3 billion, slightly ahead of the Zacks Consensus Estimate of $8.2 billion and up 1% year over year.

The company boasts an impressive surprise history, exceeding estimates in three of the last four quarters with an average beat of 6.9%. This is depicted in the graph below:

Q3 Flashback

American Express’ earnings results for the third quarter will likely reflect a solid progress graph, driven by the company’s current priorities of accelerating revenue growth, optimizing investments and resetting the cost base.

Earnings will also benefit from efforts to continue to return significant capital reserves to shareholders through dividend and share buyback programs.

We expect to see an increase in net card fees, banking on a continued strength in the U.S. Platinum and Delta portfolio as well as growth in Mexico and Japan.

The company’s operating expense is expected to decline owing to cost-reduction initiatives undertaken by the company.

The tax is likely to have declined due to higher earnings from a lower tax rate in the international market than in the previous year. This upside is also expected to aid the bottom line.

Card Member loan and receivable growth should be strong in the third quarter since the company continues to build upon loans from existing customers as well as via the acquisition of new Card Members. Provisions for losses should consequently rise as a result of higher Card Member loans and receivables as well as a slight ascent in delinquencies and higher net write-off rate.

On the contrary, we expect improvement in reward expense, reflecting the company’s enhanced U.S. Platinum products, implemented at the beginning of fourth-quarter 2016, besides continued strong growth and its Delta co-brand portfolio.

Earnings Whispers

Our proven model does not conclusively show that American Express is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: American Express has an Earnings ESP of 0.00%. This is because the Most Accurate estimate of $1.48 per share is in line with the Zacks Consensus Estimate.  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 Earnings ESP of 0.00% makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies worth considering from the same space as our model shows them to possess the right combination of elements to beat estimates this quarter:  

Visa Inc. (V - Free Report) will report third-quarter 2017 earnings results on Oct 25. The company has an Earnings ESP of +1.06%, carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Voya Financial, Inc. (VOYA - Free Report) has an Earnings ESP of +0.92% with a Zacks Rank of 3. The company is expected to report third-quarter earnings results on Oct 31.

CME Group Inc. (CME - Free Report) has an Earnings ESP of +0.17%. This Zacks #3 Ranked company is expected to report third-quarter earnings results on Oct 26.

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Visa Inc. (V) - free report >>

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