Will AmEx (AXP) Beat Earnings the 3rd Time this Year?

Global electronic payment processor, American Express Co. (AXP) or AmEx is scheduled to release third-quarter 2014 financial results after the closing bell on Oct 15.

In the last reported quarter, the company delivered a positive earnings surprise of 1.6%, while the four-quarter trailing average beat is pegged at 0.7%. Let us see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that AmEx is not likely to beat earnings as it lacks the required combination of two key components.

Zacks ESP: The Most Accurate estimate of $1.38 per share is on par with the Zacks Consensus Estimate of AmEx. Hence, the Expected Surprise Prediction or Earnings ESP, which is the difference between the aforementioned estimates, is 0.00%.

Zacks Rank: AmEx has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 and 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Factors at Play

While AmEx’s spend-centric model and healthy capital ensure steady long-term growth, the impact of regulations, intense competition and litigations, like the present one with the U.S. Department of Justice (DoJ) are likely to weigh on financials.

However, a high payout ratio by way of incremental share repurchases and dividends help retain shareholders’ confidence in the company. Superior capital ratios, return on equity and increased liquidity from the restructuring of business travel operations also bode well for healthy operating leverage, while raising scope of business expansion as well.

Alongside, management expects to limit annual operating expenses to less than 3% in 2014. Notably, it had kept the rise limited to1% in 2013 and first-half 2014.

Stocks to Consider

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

Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1 (Strong Buy).

MasterCard Inc. (MA) has Earnings ESP of +2.6% and a Zacks Rank #2 (Buy).

Visa Inc. (V) has Earnings ESP of +2.4% and a Zacks Rank #2.
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MASTERCARD INC (MA): Free Stock Analysis Report

VISA INC-A (V): Free Stock Analysis Report

AMER EXPRESS CO (AXP): Free Stock Analysis Report

HEARTLAND PAYMT (HPY): Free Stock Analysis Report

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