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Buy American Express Stock Ahead of Q2 Earnings Report?

Christopher Vargas

American Express AXP was able to hit a new all-time high Wednesday, trading as high as $129.34. The financial company has been able to keep shareholders happy in the first half of 2019, rising 33.85% year-to-date. With the company set to report its second quarter earnings before the opening bell on Friday, let’s take a closer look as to what to expect from the earnings report and company as whole.

Overview

The financial services giant has been able to deliver for investors thus far, and is looking to turn in a strong quarterly report to continue the successful year. American Express is both a card issuer and a card processer, which allows the company to keep a bigger chunk of interchange fees than companies like Visa V and MasterCard MA. The company has been updating some of its signature card lines, but has been hiking up its annual fees in the process. Rumbles coming from the Amex owning community have suggested that cardholders feel that the company might be crossing boundaries. In recent years, American Express has faced some stiff competition from the likes of JPMorgan Chase JPM that has tried to entice credit card clients with lucrative rewards.

Starting next month, the company’s association with Priority pass will be ceasing meal credits at participating airport restaurants. This may not bode well for the credit card giant, as the benefit will still be offered to clients through rival credit card providers. In addition, AXP is cracking down on a loophole where its incidental fee credit could be redeemed through purchasing select airline gift cards. This initiative comes as an attempt for American Express to eliminate the pesky churners who may be hindering the company’s bottom line.

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Q2 Estimates

American Express was able to bring in revenues of $11.26 billion, which was a year-over-year jump of 8.9% in Q1 2019. In addition, the company’s bottom line was able to slightly surpass our Consensus Estimates by an EPS surprise of 0.50%. The company has been able to exceed our Consensus Estimates three out of the past four reported quarters for an average EPS surprise of 0.84%. AXP attributed $2.73 billion of its revenue from interest on loans out of the total interest income of $2.95 billion it brought in. The company fell slightly short of our NFM estimates for total cards in force in Q1 by reporting $113.9 million, which was short -0.96% of the estimated $115 million. American Express’s Return on Average Equity also fell short of estimates by 3% by reporting $31.9 million.

Our Estimates are currently projecting for revenues from net of interest expenses to total $2.94 billion in the second quarter of 2019. In addition, total cards-in-force are being estimated to total $113 million in the second quarter as well. Year-over-year Consensus Estimates are forecasting for the credit card giant’s earnings to increase 11.41% with a top line spike of 8.21% to $10.82 billion. Consensus Estimates are projecting earnings to be $2.05 this quarter, which would be a 2% increase from last quarter’s reported EPS of $2.01.

Bottom Line

American Express is expected to show signs of growth this current quarter with their year-over-year estimates. Double-digit bottom-line growth is forecasted to continue for American Express through 2020. The company is making moves toward improving their bottom line by potentially losing some churners but could end up hindering the company’s growth as a result. The credit card issuer is listed as a Zacks Rank #3 (Hold) with a Style Score of B in Value. Shareholders of the financial services company should keep their eyes set on the Fed’s meeting scheduled to take place later in the month, as the decision to cut rates will have an impact on American Express.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
American Express Company (AXP) : Free Stock Analysis Report
 
Visa Inc. (V) : Free Stock Analysis Report
 
Mastercard Incorporated (MA) : Free Stock Analysis Report
 
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