Story Stocks®
Updated: 18-Oct-24 11:50 ET
American Express gets swiped as modest drop in spending growth sparks sell-the-news reaction (AXP)
With shares of American Express (AXP) trading at all-time highs, and up 53% on a year-to-date basis, the credit card company had a very high bar to hurdle when it issued its 3Q24 earnings report earlier this morning. Discover Financial Services' (DFS) upside Q3 earnings report from Wednesday, which featured net interest income growth of 10%, only served to raise the expectations further. As anticipated, AXP did deliver solid results, comfortably topping EPS expectations as its affluent customer base continued to spend at a healthy clip. However, billings and revenue growth did slow, and AXP's updated FY24 revenue guidance of "around 9%" is a downgrade from its prior outlook of 9-11%.
These factors, along with CFO Christope LeCaillec's admission that its cardholders have become a little more cautious with their spending were enough to spark a sell-the-news reaction. Overall, though, there was still plenty to like with AXP's results.
These factors, along with CFO Christope LeCaillec's admission that its cardholders have become a little more cautious with their spending were enough to spark a sell-the-news reaction. Overall, though, there was still plenty to like with AXP's results.
- Driven by effective cost management and a 6% increase in billed business to $387.3 bln, EPS increased by about 6% yr/yr to $3.49. Better yet, AXP raised its FY24 EPS guidance to $13.75-$14.05 from its prior outlook of $13.30-$13.80, while also noting during the earnings call that mid-teens EPS growth in 2025 can be expected. If fact, Mr. LeCaillec stated that it can achieve mid-teens EPS growth range even if the company doesn't reach 10% or 11% revenue growth.
- In addition to providing more resilient spending trends, another advantage of AXP's affluent customer base is that its credit quality is quite strong. On that note, the net write-off rate in Q3 dipped to just 2.2% from 2.4% last quarter. Further, with a lower net reserve build yr/yr, the provisions for credit losses remained manageable at $1.4 bln compared to $1.2 bln in the year-earlier period.
- Billed business growth did slow to 6% compared to 8% a year ago, with the slowdown completely driven by a pullback in the Travel & Entertainment (T&E) and Airline categories. Specifically, spending growth in both T&E and Airline slowed to 6% versus 13% a year ago.
Overall, business remains healthy for AXP, and the company remains a best-in-class name in the credit card industry thanks to its solid execution and coveted affluent customer base. We mainly view today's selloff as a profit-taking pullback as the company remains poised to deliver mid-teens EPS growth next year.
