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 December-period and full-year financial results. For the quarter, due to a tax charge, the company incurred a share loss of $1.41. However, we view the tax item as non-recurring in nature and, absent that charge, share net came in at $1.58. That figure was $0.09 higher than our estimate, and compares favorably to the year-ago tally of just $0.88 a share. For the full year, Amex achieved share earnings of $5.89, or 4% better than 2016's profits. Following the earnings report, shares of American Express were down slightly in after-market trading.
Additional details of the December quarter were, overall, quite positive. Total revenues net of interest expense were $8.8 billion, ahead of our estimate of $8.6 billion and 10% higher, year over year. The increase stemmed from greater card member spending, fees, and loans. On the other hand, the provision for loan losses expanded 33%, to $833 million. The rise can be attributed to the growing loan portfolio and a jump in pending write-offs and delinquency rates. That said, credit quality remained above historical levels, and shouldn't be much of a concern.
Looking ahead, we are bullish in regard to American Express' prospects. Over the past year or so, following the business separation from Costco, management has implemented a number of initiatives that should meaningfully bear fruit in 2018. This includes marketing endeavors and technology improvements, along with cutting down on some operating expenses. Even more important, this year's profits will receive a big boost from tax reform. Over the past several years, Amex's tax rate has hovered in the low-to-mid 30's, and ought to come down to around the headline percentage of 21%. All told, for 2018, we have increased our share-net estimate from $6.35 to $7.10, which is the midpoint of management's guidance ($6.90-$7.30).
As for the stock, after trading lower in 2015 and early on in 2016, it has staged a huge comeback. In fact, over the past two years, the issue has advanced more than 80% in price. This surge has, in our opinion, reduced the equity's investment appeal, though we could easily see the price head higher, especially if the bull market persists. That said, AXP now appears fully valued, and we recommend that most interested investors wait for a better entry point.
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
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
