Earnings Preview: American Express, Capital One, Intel

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Earnings season hasn’t disappointed in the sense of fulfilling renewed doubts about the strength of the U.S. economic recovery. Earlier this morning, the investment community received quarterly results from both Bank of America and Citigroup. While Bank of America met its net income forecast, revenue came in significantly lower than analyst expectations. Citigroup managed to disappoint on both earnings and revenue, causing investors to sell on the news.

Without question, it’s a difficult process having to navigate the mixed indicators between company-specific earnings reports and broader economic data. Often times the best approach is to step back, use earnings season as a learning resource, and put your cash to work once the dust settles. Here are three notable S&P 500 components that report earnings after today’s market close.

American Express (NYSE: AXP)
Thursday, Jan. 17 after market close; Consensus $1.06 EPS / Revenue $8.12 billion

American Express pre-announced earnings on January 10 when the company disclosed preliminary adjusted net income of $1.09 per share for fourth quarter 2012. Cardmember spending was 8 percent higher during the calendar fourth quarter 2012 compared to the identical 2011 period, despite a brief dip in early fall due to Hurricane Sandy. This announcement is preliminary and the company will not file formal results with the SEC until after the market close on Thursday.

Following the January 10 announcement, American Express has received downgrades from analysts at both Goldman Sachs and JPMorgan. Goldman downgraded American Express to Neutral from Buy citing limited revenue growth and valuation, while maintaining its $65 price target. AXP trades at 14x price-to-earnings, and earnings have outpaced revenue growth over the last 12 months, which is not sustainable over the long-term.

Analysts at JPMorgan made similar remarks, downgrading the stock to Underweight from Neutral while maintaining a $60 price target. The Wall Street firm cited the lack of near-term catalysts for American Express and concerns over the company’s operating leverage.

Capital One Financial (NYSE: COF)
Thursday, Jan. 17 after market close; Consensus $1.62 EPS / Revenue $5.88 billion

For the fourth quarter 2012, analysts expect Capital One to report income of $1.62 per common diluted share on revenue of $5.88 billion. The Wall Street community is notably more bullish on Capital One than American Express going into Thursday afternoon’s earnings release. On January 2, Asia’s largest brokerage firm CLSA named Capital One a top pick for the 2013 calendar year, citing anticipated improvement in operating earnings and the company’s repurchase plan. CLSA is short for Credit Lyonnais Securities Asia.

In contrast to its downgrade of American Express, Goldman Sachs upgraded shares of Capital One to Buy from Neutral with a $75 price target. Both CLSA and Goldman believe the share price of Capital One could rise on the basis of multiple expansion. The company currently trades at 10.5x price-to-earnings, compared to a 20x industry average.

In other news, Capital One’s quarterly Small Business Barometer report found that small business owners have a steady business outlook for the next 6 months. 29 percent of small business owners believe economic conditions will improve, 24 percent are pessimistic and expect a decline in business, while 45 percent believe the economy will remain about the same.

Thursday, Jan. 17 after market close; Consensus $0.45 EPS / Revenue $13.53 billion

The Santa Clara, California based technology giant has seen its shares fall more than 12 percent in the last 52 weeks. For the fourth quarter 2012, analysts expect Intel to report earnings per share of $0.45 on quarterly revenue of $13.5 billion.

Investors will be hoping to see an improvement in Intel’s profitability, as the company’s operating margin fell to 28.5% during the third quarter 2012 compared to a significantly higher 33.6% during third quarter 2011. Analysts at boutique firm Maxim Group believe margins are approaching a bottom, and recommends that clients begin to accumulate shares on the above basis.

The $110 billion dollar company has seen its market capitalization fall beneath that of technology compatriot Qualcomm​, which continues to drive innovation in the mobile technology chip space. Shares of Qualcomm have risen 2% since I published The Troll at the Gate: Why This Company is the Clear Winner in Smartphones on November 30.

Investors were disappointed with Intel's latest Atom mobile chip offering at the recent Consumer Electronics Show in Las Vegas, and feel that Intel isn't competing as it should. Despite Qualcomm continuing to hold its market share in mobile, I believe Intel Corporation is attractive on a valuation basis and the company should remain dominant in the PC server market.

Reviewing This Morning's Economic Data

On the economic front, the U.S. Census Bureau released new residential construction statistics (“housing starts”) for December earlier this morning at 8:30 a.m. The fluctuation in monthly data continued, albeit in a positive way. Housing starts rose a seasonally adjusted 12.1% in December, having decreased 3.0% for November. The trend seems to be stabilizing, however, as housing starts have now risen in three of the last four months when considering data from September and October. Readers can view the Census Bureau release in its entirety here.

The U.S. Department of Labor also released its weekly jobless claims data this morning. For the week ending January 12, the advance figure of initial claims fell to 335,000. This is 10 percent decrease from the prior week’s adjusted figure of 372,000. To put the current unemployment data in perspective, the number of claims surged above 600k during the 2008-09 recession, and in recent months have been in a range between 350k and 400k. Readers view the official DOL release here.

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johnmacris has no position in any stocks mentioned. The Motley Fool recommends American Express and Intel. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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