American Express Seen Beating Street Estimates For Q2 At D.A. Davidson

D.A. Davidson’s Arren Cyganovich expects American Express Company AXP to announce its earnings ahead of the consensus when it reports its 2Q16 results on July 20.

Cyganovich maintains a Neutral rating on the company, with a price target of $66.

The analyst expects American Express to report earnings of $2.03 for 2Q16, versus the consensus forecast of $1.81.

2Q16 Expectations

The consensus expectations include the impact of the Costco Wholesale Corporation COST loan portfolio sale, which closed on June 20 and brought in approximate gain of $1 billion approximate gain, Cyganovich mentioned.

American Express is likely to treat the gain from the portfolio sales as a contra-expense item, which would lower the entire expense line and associated ratios in 2Q16.

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“The initial impact of Costco on the top line will be modest in 2Q as the loan sale was completed on June 20th providing nearly a full quarter of related revenues from the portfolio,” Cyganovich stated.

The analyst also noted that a major headwind to American Express’ top line was persisting pressure on the discount rate, which was expected to drive a larger year-on-year decline than that seen in 1Q16.

Although FX pressures have been declining, there is a difference across currencies. Revenue growth is expected to be flat year-on-year in 2Q16, at $8.3 billion.

While the 2Q16 EPS estimate has been raised, the 2016 and 2017 EPS estimates have been lowered to reflect lower approved share buybacks under the 2016 CCAR.