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 September-period financial results. For the quarter, revenues of $8.4 billion were nicely ahead of the year-earlier figure ($7.8 billion) and beat our estimate of $8.3 billion. Share net came in at $1.50, which was a nickel better than our expectation and compared favorably with the $1.20 achieved last year. Following the earnings announcement, shares of AXP didn't move much.
Additional details of the September quarter included healthy gains in net interest income and card member spending, which was attributed to solid loan growth and an increase in new credit cards. On the other hand, the provision for loan losses expanded 53%, to $769 million. The rise reflected the growing loan portfolio and an increase in lending write-offs and delinquency rates. That said, credit quality remained above historical levels, and shouldn't be much of a concern.
For full-year 2017, we are adding a nickel to our bottom-line estimate, which now stands at $5.80 a share. This is at the low ends of management's guidance ($5.80 to $5.90). We are keeping our 2018 estimate intact, which stands at $6.35 a share. Looking ahead, although Amex is making strides, our outlook remains unexciting. The company continues to navigate life after Costco, and offsetting this business will not be easy. On the bright side, management has implemented a number of strategies, including bolstering the marketing budget and its technology, while also cutting down on other operating expenses. All told, we agree with the approach, but it will take time for these endeavors to bear fruit.
However, the biggest change in the company's approach was its announcement that Kenneth Chenault will step down from his posts on February 1, 2018. Mr. Chenault has been with Amex for 37 years and has served as Chairman and CEO since 2001. He will be replaced by Stephen J. Squeri, who has served as Vice Chairman since 2015. Mr. Squeri will be in charge of ushering Amex through the current transition, and has already promised some organizational changes.
As for the stock, after trading at a depressed level for some time, it has perked up of late. In fact, year to date, it has been one of the best performers in the Dow. In our opinion, this has reduced this issue's investment appeal. Thus, we recommend that most investors 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.
— Ian Gendler
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
