American Express Earnings Beat But Revenue Falls Short; Dow Stock Eyes Buy Point

Credit card giant American Express (AXP) reported mixed first-quarter results early Thursday, kicking off results for big payments stocks. American Express stock, a Dow Jones component, rose modestly after the open, nearing a buy point.

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American Express Earnings

Estimates: Wall Street expected American Express earnings per share to rise 8% to $2, according to Zacks Investment Research. Revenue was seen swelling 8% to $10.49 billion.

Results: American Express earnings per share came in at $2.01 on revenue of $10.36 billion, up 7%, led by higher member spending, loan volumes and fee income. Consumer services revenue rose 9% to $5.6 billion. Commercial services revenue grew 6% to $3.2 billion. Merchant and network services revenue was flat at $1.6 billion.

Consolidated provisions for losses were $809 million, up 4%. Expenses rose 11% to $7.6 billion due in part to higher customer engagement costs.

“We continued to expand our merchant network and added 3.1 million new proprietary cards in the quarter driven primarily by our digital acquisition initiatives,” said Chairman and CEO Stephen Squeri.

Outlook: Management backed its previous guidance. At its investor day last month American Express reiterated 2019 guidance for 8%-10% revenue growth and EPS between $7.85-$8.35. Management also said it continues to see a favorable macro backdrop.

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American Express Stock

Shares rose 1.1% at 113 in morning trading on the stock market today. American Express stock is in a cup-with-handle base with a 114.35 entry, MarketSmith analysis shows.

Fellow Dow Jones credit card giant Visa (V), which posts earnings on April 24, was down 0.2% early Thursday. Mastercard (MA), which is reporting April 30, was up 0.3%.

American Express stock is trading above its 50 and 200-day lines, while its 50-day moving average recent moved above the 200-day. But its relative strength line has been showing signs of weakness in recent weeks.

American Express stock has been a solid performer, which is reflected in its IBD Composite Rating of 91 out of 99. But it still lags 14th place in the competitive Finance-Credit Card/Payment Processor Group. Unlike Mastercard and Visa, which operate networks for cards issued by banking giants and derive revenue from transaction fees, American Express issues its own cards. This leaves it more at the mercy of interest rates.

The Stock Checkup Tool shows American Express earnings are lagging its stock market performance. Earnings have grown by an average of 19% over the past three quarters, which is better than its three year rate of 14%. This is not enough for it to pass muster as a CAN SLIM stock, which calls for stocks to have grown earnings by at least 25% or more for the past 3 years.

Analysts Cautious On American Express

Heading into earnings, CFRA analyst Chris Kuiper rated American Express stock a hold with a 110 target.

He said the AmEx is “navigating the competitive landscape well” and said that it is “positioned better than peers” as 75% of revenue comes from fees compared to 20% for rivals. This means it does well even when lower interest rates and flatter yield spreads crimp net interest margins. Despite this, he said it still faces challenges.

“We think AXP will not be immune to risks in the credit card industry, namely slowing loan and billings growth as rates rise,” he said in a research note. “We are also skeptical on AXP’s ability to deliver operating leverage as rewards and marketing expenses continue to rise.”

Meanwhile, Piper Jaffray senior analyst Jason Deleeuw rated American Express stock as neutral with a 117 target. He sees good growth opportunities ahead, but is worried about the impact of fierce competition will have on the American Express earnings.

“We walked away from the investor day feeling better informed about top line growth opportunities in B2B and international expansion coupled with operational efficiencies through technology automation,” he said in a research note. “However, we remain Neutral-rated, reflecting the strength of AXP’s differentiated business model balanced by the headwinds of increasingly competitive card environment.”

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The post American Express Earnings Beat But Revenue Falls Short; Dow Stock Eyes Buy Point appeared first on Investor's Business Daily.

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