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Growth in Billings to Aid American Express' (AXP) Q2 Earnings

American Express Company AXP is expected to report second-quarter 2018 results on Jul 18. The company’s performance is likely to reflect gains from its four focus areas — strengthening leadership in the premium consumer segment; extending leadership in commercial payments, and in particular, with small and medium-sized enterprises; enhancing its digital platform; and strengthening its global integrated network to provide unique value. Results are likely to also benefit from a lower corporate tax rate.

Revenues in the to-be-reported quarter are expected to see an upside from accelerated growth in billings along with continued strength in loans and fees. Per the Zacks Consensus Estimate, revenues — net of interest expenses — are expected to be $10 billion, up 20.6% year over year.

The company has suspended its share buyback program for the first half of 2018 in an effort to boost its capital. Consequently, the bottom line will not receive any benefits of share buyback. The company recently announced to commence share buyback in the third quarter of 2018.

Factors Affecting Q2 Results

Growth in Billed Business: The company is anticipated to witness an increase in worldwide billed business across its diverse customer segments and geographies in the second quarter. U.S. proprietary consumer and international proprietary consumer billings growth are likely to remain strong. The company’s U.S Platinum franchise is anticipated to drive growth in billed business.

Global Network Services billed business is expected to grow at a slower rate over the year than the proprietary business due to the impact of the evolving regulatory environment in Europe and Australia. Per the Zacks Consensus Estimate, card billed business revenue is expected to be $294 billion, up 8.9% year over year.

Increase in Loan and Receivables: Growth in Card Member loan and receivables is anticipated as the company continues to expand its relationship with existing customers while acquiring new Card Members.

Increase in Total Cards in Force: Total cards in force, which reflects the number of cards that are issued and outstanding, is likely to increase in the second quarter. The Zacks Consensus Estimate for the same is 118 million, up 5.4% year over year.

Slowdown in Net Interest Income: The company has been expecting a steady increase in net interest yield for some time and is anticipating some stabilization on this front. Thus, the company expects growth in net interest income to slow down through the year.

Increase in Provisions for Losses: We expect to witness an increase in provision for losses, led by growth in the loan portfolio and an increase in the lending write-off and delinquency rates.

Higher Expenses: The second quarter must have endured an increase in expenses. The rise would have been primarily due to growth in rewards expenses and other costs associated with increased Card Member spending, higher usage of card benefits, and continued investments in cobrand partnerships.

Earnings Surprise History

The company has an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 3.5%. This is depicted in the chart below:

American Express Company Price and Consensus


Here is what our quantitative model predicts:

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

Zacks ESP: American Express has an Earnings ESP of -2.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though American Express currently carries a Zacks Rank #3, its negative ESP makes our surprise prediction difficult.

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

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Visa Inc. V has an Earnings ESP of +1.44% and a Zacks Rank #3. The company is expected to report third-quarter fiscal 2018 earnings results on Jul 25. You can see">the complete list of today’s Zacks #1 Rank stocks here.

WEX Inc. WEX has an Earnings ESP of +0.74% and a Zacks Rank #2 (Buy). The company is expected to report second-quarter earnings results on Jul 26.

Evertec, Inc. EVTC is expected to report second-quarter 2018 earnings results on Jul 31. The company has an Earnings ESP of +0.76% and a Zacks Rank #3.

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