Shares of American Express (AXP) took an unexpected dip following the release of its third-quarter earnings, despite delivering results that surpassed expectations.
The credit card giant reported solid revenue growth and raised its full-year profit outlook, but concerns over slowing consumer spending and rising credit losses have weighed on investor sentiment.
Strong Earnings But Softer Revenue Growth
For the third quarter, American Express reported revenue of $16.6 billion, up from $15.4 billion a year ago, while adjusted earnings per share came in at $3.49, comfortably beating the $3.28 consensus estimate. The company also raised its full-year profit guidance to a range of $13.75 to $14.05 per share, a bump from its previous forecast of $13.30 to $13.80.
Despite these positive metrics, the market reacted negatively, with shares falling nearly 5% by midday Friday. The slight revenue miss rattled investors, reflecting a broader concern that even American Express' affluent customer base may be tightening their belts in response to economic uncertainty.
For the third quarter, American Express reported revenue of $16.6 billion, up from $15.4 billion a year ago, while adjusted earnings per share came in at $3.49, comfortably beating the $3.28 consensus estimate. The company also raised its full-year profit guidance to a range of $13.75 to $14.05 per share, a bump from its previous forecast of $13.30 to $13.80.
Despite these positive metrics, the market reacted negatively, with shares falling nearly 5% by midday Friday. The slight revenue miss rattled investors, reflecting a broader concern that even American Express' affluent customer base may be tightening their belts in response to economic uncertainty.
Rising Concerns Over Credit Quality
Another red flag for investors was the increase in American Express' reserves for credit losses, which jumped 21% year-over-year to $5.3 billion. Net write-offs and 30-day delinquencies also ticked higher, suggesting that the company is bracing for a potential uptick in loan defaults.
While American Express has long benefited from its wealthier customer base, typically exhibiting lower default rates, the recent increase in credit provisions hints that even these high-net-worth individuals may be feeling the pinch of inflation and other economic pressures. This shift has caused some to view the stock’s premium valuation—currently around 20 times trailing earnings—as potentially overstretched.
Another red flag for investors was the increase in American Express' reserves for credit losses, which jumped 21% year-over-year to $5.3 billion. Net write-offs and 30-day delinquencies also ticked higher, suggesting that the company is bracing for a potential uptick in loan defaults.
While American Express has long benefited from its wealthier customer base, typically exhibiting lower default rates, the recent increase in credit provisions hints that even these high-net-worth individuals may be feeling the pinch of inflation and other economic pressures. This shift has caused some to view the stock’s premium valuation—currently around 20 times trailing earnings—as potentially overstretched.
A Long-Term Opportunity Amid Short-Term Volatility?
Despite the stock's drop, analysts remain cautiously optimistic about American Express' long-term prospects. The company’s ability to grow earnings and maintain a strong customer base in an increasingly challenging economic environment underscores its resilience. Cost management remains a bright spot, with the company delivering a 6% increase in billed business and maintaining a relatively low net write-off rate of 2.2%.
The current market reaction appears to be more of a short-term correction than a sign of deeper issues. For long-term investors, this dip could present a buying opportunity, particularly given American Express' track record of weathering market volatility. With expectations for mid-teens earnings growth in 2025, driven by both cost efficiency and revenue expansion, the company remains well-positioned to capitalize on a recovery in consumer spending once broader economic conditions improve.
While today’s sell-off may seem concerning, American Express remains a formidable player in the credit card industry, poised to bounce back as economic conditions stabilize.
Despite the stock's drop, analysts remain cautiously optimistic about American Express' long-term prospects. The company’s ability to grow earnings and maintain a strong customer base in an increasingly challenging economic environment underscores its resilience. Cost management remains a bright spot, with the company delivering a 6% increase in billed business and maintaining a relatively low net write-off rate of 2.2%.
The current market reaction appears to be more of a short-term correction than a sign of deeper issues. For long-term investors, this dip could present a buying opportunity, particularly given American Express' track record of weathering market volatility. With expectations for mid-teens earnings growth in 2025, driven by both cost efficiency and revenue expansion, the company remains well-positioned to capitalize on a recovery in consumer spending once broader economic conditions improve.
While today’s sell-off may seem concerning, American Express remains a formidable player in the credit card industry, poised to bounce back as economic conditions stabilize.
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