The payment processor had record revenue and raised its earnings guidance for the complete fiscal 12 months.
American Express (NYSE:AXP), by most measures, had a superb second quarter, yet its stock price was down greater than 4% on Friday to below $240 per share.
Revenue hit a record high of $16.3 billion within the second quarter, some 9% higher than the identical quarter a 12 months ago, while net income soared 39% to $3.0 billion, or $4.15 per share.
The third largest payment processor also raised its full 12 months earnings per share outlook. So why was American Express stock down greater than 4% on the day?
Analysts had projected higher revenue for American Express, about $16.6 billion, so it was viewed as a revenue miss. Should investors be concerned or view this as a buying opportunity?
Record revenue not enough?
American Express’ record revenue was driven by interest income, which spiked 21% to $5.8 billion. Unlike Visa and Mastercard, American Express can be a lender, so it earns interest income, along with swipe fees.
Its non-interest income, derived primarily from swipe and annual fees, was $12.6 billion, up 5% year-over-year.
American Express card members spent $441 billion within the quarter, up 3% year-over-year, while card member loans rose 14% to $131 billion. American Express cards-in-force, meaning cards in circulation, rose 5% within the quarter, year-over-year, while latest cards issued jumped 10% to three.3 million. As well as, the typical fee per card increased 11% to $101.
This all contributed to a 39% increase in net income and a 44% rise in earnings per share. It ought to be noted, nevertheless, that EPS was boosted by the sale of Accertify, which closed within the second quarter. Adjusted EPS, excluding the transaction, was $3.49 — still a 21% year-over-year increase.
“For the reason that end of 2021, we now have significantly grown the dimensions of our business, increasing revenues by nearly 50% and card member spending by almost 40%, while adding around 23 million latest cards and over 30 million merchant locations,” Stephen Squeri, chairman and CEO, said. “This increased scale, combined with our premium, high credit quality customers, our well-controlled expense base and our successful investments to constantly enhance our membership model, fuels the earnings power of the core business and reinforces our confidence in our ability to deliver strong bottom-line growth.”
Outlook calls for growth
That momentum is predicted to proceed as American Express raised its earnings guidance to $13.30 to $13.80 per share, from the previous estimate of $12.65 to $13.15. That will be an 18% to 23% gain over 2023. Also, revenue is anticipated to grow 9% to 11% for the 12 months, in keeping with previous guidance.
American Express also improved its money position by 23% to $53 billion, which is able to allow the corporate to spice up its marketing spending by 15% over last 12 months.
American Express stock didn’t get any price goal upgrades after it released Q2 earnings on Friday morning and the consensus 12-month price goal is $253, which can be just 5% higher than it’s now. It’s up 29% YTD.
Buying opportunity
I believe today’s selloff creates a buying opportunity for investors, as American Express is an excellent company and the decline on Friday makes it a bit of cheaper. It currently has a P/E ratio of 20.
It’s one among just 4 major bank card/payment processors, so it enjoys a pleasant moat around its business. But additionally it is unique inside the space since it caters to a wealthier clientele, making it less liable to shifts in consumer spending.
American Express stock is one among the most important, and longest held, positions in Warren Buffett’s Berkshire Hathaway portfolio for a reason. It’s a stock to contemplate for investors searching for a solid, reliable, long-term option.