Solid Earnings Doesn't Mean a Solid Buy

Earnings season is kicking into gear. We’ve already seen some big name stocks reporting, like Netflix (NFLX), United Healthcare (UNH) and Intuitive Surgical (ISRG), which I covered in yesterday’s blog post. Today we’re going to continue looking at companies with solid earnings. But we need to remember—a solid earnings report doesn’t always mean the company is a solid buy.

American Express Company (AXP) is one of the world’s largest card issuers by purchase volume. The financial services company began as a delivery business in 1850. Over time, American Express scaled down its delivery services—which included the delivery of financial products—to focus on selling its own financial products. Today, American Express operates in over 130 countries, brings in $32 billion in annual revenue and manages 110 million credit cards.

Shares of American Express Company are pointing to a higher opening today, following the company’s better-than-expected first-quarter earnings report last night. Thanks to higher consumer spending, American Express revealed that its first-quarter profit jumped 31%.

The company reported net income of $1.63 billion, or $1.86 per share, which topped analysts’ estimates for $1.71 per share by 8.8%. First-quarter revenue increased 12% year-over-year to $9.72 billion, also beating estimates for $8.9 billion.

Given the strong first-quarter report, American Express management noted that they expect total revenues to be up at least 8% in 2018. Fiscal year 2018 earnings per share are forecast to be at the high end of their full-year guidance of $6.90 to $7.30.

However, even with the positive earnings guidance, American Express remains a C-rated Hold in my Portfolio Grader tool. That rating is based mainly on the company receiving poor marks in Operating Margin Growth, Earnings Growth and Earnings Momentum.

My recommendation is always to wait until a stock has either an A- or B-rating in Portfolio Grader before making a move to Buy. On the other hand, there’s no need to sell a C-rated stock until it moves down to a D. For the moment, I urge you simply to keep an eye on Portfolio Grader and follow American Express Company’s ratings trajectory.

Until Tomorrow,

Louis Navellier

Louis Navellier

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