American Express (AXP – Free American Express Stock Report), a Dow-30 component and one of the world's largest issuers of credit cards, has reported March-period financial results. For the quarter, the company achieved share earnings of $1.86, which were above our estimate and represented a year-over-year gain of 39%. Following the news, shares of American Express moved sharply higher in early morning trading.
Additional details of the March quarter were, overall, quite positive. Total revenues net of expenses were $9.7 billion, or 12% higher than the previous year's tally. The increase stemmed from higher card member spending, loans, and fees. On the other hand, consolidated expenses climbed 9%, to $6.9 billion, which reflected greater rewards costs. Also, the provision for loan losses expanded 35%, to $775 million. The rise was attributed to the growing loan portfolio and an increase in lending write-off and delinquency rates. That said, credit quality remained high and should not be much of a concern.
Looking ahead, we remain bullish in regard to American Express' operations. As the first-quarter profit indicated, management has done a fine job of replacing the lost business from its recent separation from Costco (COST). The company has aggressively implemented marketing endeavors and technology improvements, which should continue to bear fruit. Just as important, the bottom line will receive a significant boost from tax reform. Over the past several years, Amex's tax rate has hovered in the low-to-mid 30's and, for the first quarter, it was just 22%. All told, for 2018, we have increased our share-net estimate by $0.20, to $7.30, which is at the high end of management's guidance ($6.90-$7.30). For 2019, we expect earnings to reach $7.90 per share.
As for the stock, after trading lower in 2015 and early in 2016, it has staged a huge comeback. In fact, it has outperformed the broader market over the past year-plus. The surge has, in our opinion, reduced the equity's investment appeal, though AXP still offers decent, risk-adjusted return potential out to 2021-2023.
About The Company: Established in 1850, American Express Company has grown to become a leading global payments, network, and travel firm. It operates through multiple business segments, including the Global Consumer Group and Global Business-to-Business Group. The company sold its AMEX Life business in October of 1995 and its American Express Bank in February of 2008. In mid-1994, it spun off Lehman Brothers to shareholders and ten years later, did the same with American Express Financial Advisors.
— Ian Gendler
