American Express (AXP – Free American Express Stock Report), the provider of charge and credit card payment products, reported third-quarter financial results that were largely in line with analyst expectations. In fact, the company reported share net of $1.09, on par with our estimate. For the interim, total revenues were almost $7.9 billion, 4% higher than the year-earlier period. The top-line advance mostly stemmed from continued growth in cardmember spending, as well as greater net interest income. The consolidated provision for loan losses totaled $479 million, up from $249 million a year ago. This increase was mostly attributed to higher reserve releases in the year-earlier period, partially offset by lower net charge-offs during the most recent quarter. Overall, credit quality remains at a very high level. In after-hours trading, shares of Amex declined modestly after the earnings report was issued.
Looking ahead, we continue to like American Express' prospects. Although there are still concerns about the health of the economy, both at home and abroad, we anticipate that cardmember spending will continue to increase at a healthy rate over the next several years. Furthermore, Amex's customers generally possess good credit scores, and we look for the provision for loan losses to remain at a very manageable level. Continued, gradual improvements in the U.S. housing and job markets would also benefit the credit card behemoth's top and bottom lines.
For 2012, we are keeping our share-net estimate unchanged at $4.40, which would represent an almost 8% year-over-year increase. We are also reaffirming our 2013 call, which stands at $4.85 a share. Our long-term outlook remains favorable, as well, and we project that earnings will reach $6.00 a share by the 2015-2017 period.
As for the stock, it has performed well of late. Year to date, the equity is up approximately 25%. For comparison, the Dow has advanced 11% over the same timeframe. That said, Amex still appears to be a bit undervalued. It is currently trading at just 12.2 times our share-net estimate for 2013, which is below the multiple we project for 2015-2017. That, along with a decent dividend yield and high Safety rank (2), cause shares of American Express to offer worthwhile total-return potential. In all, we think that Amex would make a fine addition to most equity portfolios.
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.