American Express Posts Lower-Than-Expected Earnings For Q3 as COVID-19 Slowdown Bites

Vivek Kumar
·4-min read

American Express, an American multinational financial services corporation, reported a lower-than-expected profit in the third quarter as people cut on their spending given the income and job uncertainty due to the COVID-19 led economic recession, sending its shares down about 3% on Friday.

American Express Company reported third-quarter net income of $1.1 billion, or $1.30 per share, compared with net income of $1.8 billion, or $2.08 per share, a year ago. That was lower than the market consensus of $1.35 per share. Total revenue, excluding interest expense, plunged 20% to $8.8 billion.

Global consumer services group reported third-quarter net income of $855 million, compared with $991 million a year ago.

“Overall, 3Q had some puts and takes, as AXP missed on PPNR (given 8% higher expenses), although beat on EPS due to better revs/provision. NCOs were ahead of forecast, while DQs came in better. The billed business was in-line in the qtr, and improving from trough levels seen earlier this year, although at a slower rate vs. peers (-20% YoY on an FXN basis),” said John Hecht, equity analyst at Jefferies.

“We look to the call for further outlook on N-T billed business growth, updates on credit performance, as well as commentary on expenses for the balance of the year.”

American Express shares plunged about 3% to $101.75 in the pre-market trading on Friday; the stock is down nearly 15% so far this year.

Executive comments

“While our business continues to be significantly affected by the impacts of the pandemic, our third-quarter results have increased our confidence that our strategy for managing through the current environment is the right one,” said Stephen J. Squeri, Chairman and Chief Executive Officer.

“Since the lows of mid-April, we have seen a steady recovery in our overall spending volumes. In fact, we had positive year-over-year growth in non-T&E spending, which has long accounted for the large majority of our overall volumes. While credit remains strong, with delinquencies and net write-offs at the lowest levels we have seen in a few years, we remain cautious about the direction of the pandemic and its impacts on the economy, which is reflected in our reserve levels.”

American Express Stock Price Forecast

Thirteen equity analysts forecast the average price in 12 months at $105.46 with a high forecast of $127.00 and a low forecast of $88.00. The average price target represents a 0.64% increase from the last price of $104.79. From those 13 equity analysts, three rated “Buy”, six rated “Hold” and four rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $115 with a high of $157 under a bull scenario and $55 under the worst-case scenario. The firm currently has an “overweight” rating on the payment services company’s stock. Oppenheimer raised their stock price forecast of American Express to $115 from $100 and Stephens upped their target price to $106 from $101.

Several other analysts have also recently commented on the stock. Bank of America lowered shares of American Express from a “neutral” rating to an “underperform” rating and cut their price target to $95 from $106 in Sept. In July, Deutsche Bank lowered their price objective to $106 from $108 and set a “buy” rating. Daiwa Capital Markets restated a “neutral” rating and set a $100.00 price objective.

Analyst Comments

“Revenue growth takes a near-term hit, down 16% in FY20 driven by a sharp slowdown in T&E spend. We see T&E declining 60% y/y in 2020, driving a 19% y/y decline in total card spend in FY20. While T&E will likely take at least a few years to recover, the key to the American Express (AXP) story is a bottoming of trends which we expect happens in 2H20; return to work sets the stage for a near 20% rebound in card spend in ’21, driving revenue growth of 11% in ’21,” said Betsy Graseck, equity analyst at Morgan Stanley.

“Credit quality best among card issuers on super-prime focus, though AXP exposure to small business (~25% of loans + charge card receivables) is a risk in the near-term,” Graseck added.

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This article was originally posted on FX Empire

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