American Express (AXP) Down 2.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for American Express (AXP). Shares have lost about 2.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Express due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

American Express Q2 Earnings & Revenues Beat, Up Y/Y

American Express Co. second-quarter 2019 earnings of $2.07 per share surpassed the Zacks Consensus Estimate by 0.98% and were up 12.5% year over year.

Total revenues of $10.8 billion beat the Zacks Consensus Estimate by 0.14% and were up 8.4% year over year.  This is the eighth straight quarter in which the company posted foreign exchange adjusted revenue growth of more than 8%. This growth continues to be driven by a well balanced mix of spending, fees and loans spread across geographies and customer segments.

The company continues to witness solid trends in Card Member spending led by consumers. This spending can be attributed to an economy that is growing but at a modest pace relative to 2018.

Provisions for loss totaled $861 million, up 7% year over year, which was attributable to growth in loan (up 11% year over year), receivable portfolio and an increase in higher write-offs.

Total expenses of $7.8 billion increased 9% year over year, due to growth in rewards and other customer engagement costs driven by increased Card Member spending, higher usage of card benefits and continued investments in co-brand partnerships.

During the quarter, the company added 2.9 million new proprietary cards.Nearly 70% of these new cards carry an annual fee, which reinstates the fact that Card Members are taking up cards and willing to pay for premium value.

Strong Segmental Results

American Express’ Global Consumer Services segment reported net income of $738 million, down 4% year over year. Total revenues, net of interest expenses of $5.8 billion, were up 10% year over year, reflecting higher loans and Card Member spending as well as fee income.

Global Commercial Services’ net income of $644 million was up 14% year over year. Total revenues, net of interest expenses, increased 7% year over year to $3.4 billion, primarily reflecting higher Card Member spending.

Global Merchant and Network Services’ net income rose 16% year over year to $632 million in the reported quarter. Total revenues and net of interest expenses were up 5% year over year to $1.7 billion.

Guidance Update

American Express has reaffirmed its financial guidance for 2019. The company expects revenue growth of 8%–10% this year. In addition, its adjusted EPS guidance range for 2019 is $7.85–$8.35.

The company also expects to increase the regular quarterly dividend by 10.3% to 43 cents per share, beginning with the third quarter of 2019, subject to approval by its board of directors.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, American Express has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, American Express has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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