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Evaluating AmEx Before Q3 Earnings: Buy the Stock Now or Hold?
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American Express Company (AXP - Free Report) is set to report third-quarter 2024 results on Oct. 18, 2024, before the opening bell. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at $3.27 per share, implying a decline of 0.9% from the year-ago reported number. However, the Zacks Consensus Estimate for third-quarter revenues is currently pegged at almost $16.7 billion, suggesting an 8.2% uptick from the year-ago actuals.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The estimate has witnessed downward revisions over the past 60 days.
Image Source: Zacks Investment Research
American Express beat the consensus estimate for earnings in three of the trailing four quarters and missed once, with the average surprise being 7.7%. This is depicted in the graph below:
Our proven model does not conclusively predict an earnings beat for AmEx this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company has an Earnings ESP of -0.43%. This is because the Most Accurate Estimate currently stands at $3.25 per share, lower than the Zacks Consensus Estimate of $3.27.
American Express is expected to have witnessed a rise in network volumes during the third quarter, continuing the trend seen in the past quarters. This uptick is likely attributable to resilient consumer spending of AXP’s premium customer base who are not materially impacted by economic downturns and inflation. The Zacks Consensus Estimate for third-quarter total network volumes indicates 4.2% year-over-year growth from $420.2 billion.
Discount revenues, a key source of revenues for AmEx, are likely to have benefited from rising network volumes. The Zacks Consensus Estimate for third-quarter Discount revenues indicates 5.3% year-over-year growth.
In the third quarter, Travel and Entertainment (T&E) is anticipated to have sustained its growth trend, resulting in increased T&E-related spending. Further, fees, commissions and other revenues are expected to have improved, driven by an upturn in travel-related income. The Zacks Consensus Estimate for the third-quarter International Card Service billed business indicates a 10% improvement from the year-ago period. Similarly, billed businesses in U.S. Consumer Services and Commercial Services are expected to have witnessed growth of 6% and 1.5% year over year, respectively.
Cards-in-force is likely to have witnessed an uptick in the quarter under review due to its expanding product offerings and enhancing mobile platforms improving the customer experience. The Zacks Consensus Estimate for third-quarter total cards-in-force indicates 4.9% year-over-year growth. The consensus estimate for Average Card Member loans also implies a 14.2% year-over-year increase.
AmEx’s interest income, another major revenue contributor, is likely to have risen on higher loan receivables. The Zacks Consensus Estimate for AXP’s total interest income suggests an upside of 13.3% from the year-ago reported figure of $5.2 billion.
The factors mentioned above are expected to have positioned American Express for year-over-year growth in the top line. However, an increase in expenses, card member services, marketing and salaries are likely to have trimmed margins, somewhat offsetting the positive aspects.
Third-quarter client engagement costs are likely to have increased due to expanding Card Member spending and higher usage of travel-related benefits. Also, growth in loans is likely to have impacted provision for credit losses, impacting the results. Pre-tax income for Global Merchant and Network Services, U.S. Consumer Services, and International Card Servicesis expected to have witnessed a decline in the third quarter of 2024, per the consensus estimate, making an earnings beat uncertain.
AXP’s Price Performance & Valuation
AmEx's stock has exhibited an upward movement, gaining a notable percentage over the past year. It has surged 81% compared with the industry’s rise of 28.8%. In comparison, some of its peers, like Mastercard Incorporated (MA - Free Report) and Visa Inc. (V - Free Report) , have gained 26.3% and 16.9%, respectively, during the same time frame. Additionally, AXP shares have outperformed the S&P 500 Index significantly, which rallied 32.5% in the same period.
One-Year Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value AmEx offers investors at current levels.
Currently, AXP is trading at 19.01X forward 12-months earnings, above its five-year median of 16.06X and the industry’s average of 15.04X, indicating investors’ confidence in its operations. It is also much cheaper compared to its peers like Mastercard and Visa, which are valued at 31.46X and 25.18X forward 12-months earnings, respectively.
Image Source: Zacks Investment Research
Investment Thesis
AmEx’s strategic initiatives, such as launching new products, enhancing features of existing ones, modifying prices, and forging alliances, have positioned it for long-term growth. So far, AXP’s loyal customer base and rebounding domestic and international economies have propelled its bottom line. Also, its robust cash-generating abilities are well-liked by investors, through which business investment and shareholder-friendly moves are undertaken.
However, the soft-spending growth environment might cause consumers to cut back on their discretionary spending, impacting growth in AXP’s discount revenues. Despite this, AXP continues to expect revenues to increase between 9% and 11% in 2024, implying the strength of its unique business model. Moreover, lower interest rates, post the fed rate cut would lead to high loan receivables, contributing to improved net interest income.
Final Words
While American Express faces challenges such as rising expenses and an expected deceleration in consumer spending growth, its solid growth outlook make it an appealing investment option at present. AXP’s relatively lower valuation compared to its peers further enhances its attractiveness as a buy.
The company has demonstrated impressive price performance over the past year, reflecting investors’ confidence. No matter the outcome of its upcoming earnings report and the stock’s subsequent movement, it remains a solid long-term investment pick due to its robust cash-generating abilities and unique business model.
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Evaluating AmEx Before Q3 Earnings: Buy the Stock Now or Hold?
American Express Company (AXP - Free Report) is set to report third-quarter 2024 results on Oct. 18, 2024, before the opening bell. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at $3.27 per share, implying a decline of 0.9% from the year-ago reported number. However, the Zacks Consensus Estimate for third-quarter revenues is currently pegged at almost $16.7 billion, suggesting an 8.2% uptick from the year-ago actuals.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The estimate has witnessed downward revisions over the past 60 days.
Image Source: Zacks Investment Research
American Express beat the consensus estimate for earnings in three of the trailing four quarters and missed once, with the average surprise being 7.7%. This is depicted in the graph below:
American Express Company Price and EPS Surprise
American Express Company price-eps-surprise | American Express Company Quote
Q3 Earnings Whispers for AXP
Our proven model does not conclusively predict an earnings beat for AmEx this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company has an Earnings ESP of -0.43%. This is because the Most Accurate Estimate currently stands at $3.25 per share, lower than the Zacks Consensus Estimate of $3.27.
AmEx currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Shaping AXP’s Q3 Results?
American Express is expected to have witnessed a rise in network volumes during the third quarter, continuing the trend seen in the past quarters. This uptick is likely attributable to resilient consumer spending of AXP’s premium customer base who are not materially impacted by economic downturns and inflation. The Zacks Consensus Estimate for third-quarter total network volumes indicates 4.2% year-over-year growth from $420.2 billion.
Discount revenues, a key source of revenues for AmEx, are likely to have benefited from rising network volumes. The Zacks Consensus Estimate for third-quarter Discount revenues indicates 5.3% year-over-year growth.
In the third quarter, Travel and Entertainment (T&E) is anticipated to have sustained its growth trend, resulting in increased T&E-related spending. Further, fees, commissions and other revenues are expected to have improved, driven by an upturn in travel-related income. The Zacks Consensus Estimate for the third-quarter International Card Service billed business indicates a 10% improvement from the year-ago period. Similarly, billed businesses in U.S. Consumer Services and Commercial Services are expected to have witnessed growth of 6% and 1.5% year over year, respectively.
Cards-in-force is likely to have witnessed an uptick in the quarter under review due to its expanding product offerings and enhancing mobile platforms improving the customer experience. The Zacks Consensus Estimate for third-quarter total cards-in-force indicates 4.9% year-over-year growth. The consensus estimate for Average Card Member loans also implies a 14.2% year-over-year increase.
AmEx’s interest income, another major revenue contributor, is likely to have risen on higher loan receivables. The Zacks Consensus Estimate for AXP’s total interest income suggests an upside of 13.3% from the year-ago reported figure of $5.2 billion.
The factors mentioned above are expected to have positioned American Express for year-over-year growth in the top line. However, an increase in expenses, card member services, marketing and salaries are likely to have trimmed margins, somewhat offsetting the positive aspects.
Third-quarter client engagement costs are likely to have increased due to expanding Card Member spending and higher usage of travel-related benefits. Also, growth in loans is likely to have impacted provision for credit losses, impacting the results. Pre-tax income for Global Merchant and Network Services, U.S. Consumer Services, and International Card Servicesis expected to have witnessed a decline in the third quarter of 2024, per the consensus estimate, making an earnings beat uncertain.
AXP’s Price Performance & Valuation
AmEx's stock has exhibited an upward movement, gaining a notable percentage over the past year. It has surged 81% compared with the industry’s rise of 28.8%. In comparison, some of its peers, like Mastercard Incorporated (MA - Free Report) and Visa Inc. (V - Free Report) , have gained 26.3% and 16.9%, respectively, during the same time frame. Additionally, AXP shares have outperformed the S&P 500 Index significantly, which rallied 32.5% in the same period.
One-Year Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value AmEx offers investors at current levels.
Currently, AXP is trading at 19.01X forward 12-months earnings, above its five-year median of 16.06X and the industry’s average of 15.04X, indicating investors’ confidence in its operations. It is also much cheaper compared to its peers like Mastercard and Visa, which are valued at 31.46X and 25.18X forward 12-months earnings, respectively.
Image Source: Zacks Investment Research
Investment Thesis
AmEx’s strategic initiatives, such as launching new products, enhancing features of existing ones, modifying prices, and forging alliances, have positioned it for long-term growth. So far, AXP’s loyal customer base and rebounding domestic and international economies have propelled its bottom line. Also, its robust cash-generating abilities are well-liked by investors, through which business investment and shareholder-friendly moves are undertaken.
However, the soft-spending growth environment might cause consumers to cut back on their discretionary spending, impacting growth in AXP’s discount revenues. Despite this, AXP continues to expect revenues to increase between 9% and 11% in 2024, implying the strength of its unique business model. Moreover, lower interest rates, post the fed rate cut would lead to high loan receivables, contributing to improved net interest income.
Final Words
While American Express faces challenges such as rising expenses and an expected deceleration in consumer spending growth, its solid growth outlook make it an appealing investment option at present. AXP’s relatively lower valuation compared to its peers further enhances its attractiveness as a buy.
The company has demonstrated impressive price performance over the past year, reflecting investors’ confidence. No matter the outcome of its upcoming earnings report and the stock’s subsequent movement, it remains a solid long-term investment pick due to its robust cash-generating abilities and unique business model.