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 June-period financial results. For the quarter, revenues of $8.3 billion were slightly ahead of the year-earlier figure. Share net came in at $1.47, which was a couple of pennies above our estimate. The earnings result was a far cry from last year's tally of $2.10, but that included a $1.1 billion ($677 million after taxes) gain that stemmed from the sale of Costco's (COST) loan portfolio. In 2016, American Express and the wholesale warehouse chain ended their exclusivity agreement.
Additional details of the June quarter included an 8% advance in card member spending, which was attributed to solid loan growth and a healthy increase in new credit cards. On the other hand, the provision for loan losses increased 26%, to $584 million. That said, credit quality remained above historical levels, and shouldn't be much of a concern.
Looking ahead, our near-term outlook for American Express remains unexciting. The company continues to navigate life after Costco, and offsetting this business will not be easy. On the bright side, management has already implemented a number of strategies, including increasing the marketing budget and its technology, while also cutting down on other operating expenses. All told, we agree with their approach, but it will take time for these endeavors to bear fruit. For 2017, we are reiterating our share-net estimate of $5.70, which is only a nickel better than last year's tally.
As for the equity, after trading at a depressed level for some time, it has perked up of late. In fact, year to date, the stock price has advanced 16%. For comparison, the Dow Jones Industrial Average is up 10% over the same time frame. This outperformance, in our view, has reduced this issue's investment appeal. Thus, we recommend that interested accounts wait on the sidelines 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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
