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Dow 30 Earnings: American Express - Second Quarter 2011
American Express (AXP – Free American Express Stock Report), the provider of charge and credit card payment products, has reported better-than-expected results for the 2011 second quarter. In the June period, share earnings were $1.07, 27% better than the year-earlier tally and $0.08 higher than our estimate. Revenues of more than $7.6 billion represented an 11% increase over the prior year. The healthy top-line advance mostly reflected higher cardmember spending, as well as increased travel commissions and fees. In fact, cardmember spending reached an all-time high, advancing 18% year to year. In addition, consolidated provisions for loan losses fell materially, to $357 million, from $652 million, year over year, highlighting the vast improvement in credit quality. A lower tax rate also helped the bottom line. The stock's price was little changed in after-market trading.
Looking ahead, it appears that American Express will perform well over the remainder of 2011 and through 2012. Although the United States housing market remains weak and the unemployment rate is elevated, we expect cardmember spending to continue to increase at a solid pace over the next several quarters. Overall, Amex's customers possess good credit scores, and any improvement in regard to the housing or job markets should prove highly beneficial to the company's credit card and travel businesses. We also expect further reductions in the loan loss provision, compared to the heightened levels reached during the recession. Due to the better-than-expected June results and improved outlook, we are raising our near-term earnings forecasts. We now expect 2011 and 2012 share earnings of $4.05 and $4.30, respectively, $0.15 better than our previous estimates.
Although Amex released good second-quarter financial results, at this time, we suggest that most investors look elsewhere. The price of this stock has advanced materially from its 2009 low ($9.70) and now possesses only decent capital appreciation potential to the 2014-2016 time frame. That said, some conservative investors may find American Express shares appealing. The stock is ranked 2 (Above Average) for Safety, and the company carries our highest score for Financial Strength. A modest dividend yield (1.4%) is a plus, as well. However, current shareholders, as well as prospective investors, should be aware that it is possible that the federal government will seek to pass additional laws that could limit the business prospects of American Express and other credit card companies, which adds an element of uncertainty here.
About The Company: Established in 1850, American Express Company has grown to become a leading global payments, network, and travel firm. It operates through multiple business segments, including the Global Consumer Group and Global Business-to-Business Group. The company sold its AMEX Life business in October of 1995 and its American Express Bank in February of 2008. In mid-1994, it spun off Lehman Brothers to shareholders and ten years later, did the same with American Express Financial Advisors.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.