Earnings

How will Q1 earnings affect American Express’ share price?

With the US economy virtually shutdown since the end of March, investors and traders are expecting to see a significant dent in American Express’s [AXP] first-quarter earnings results.

After a strong start to the year, American Express’ share price took a dive in late February and through March. Dropping almost 50% to a low of $68.

The New York-based firm is due to report on Friday (24 April) and judging from a mid-March trading update, its results won’t reveal the revenue growth it had been projecting. However, the company is confident.

During this update, American Express chairman CEO Stephen Squeri highlighted the company’s previous track record during uncertain times, and said the company “will continue our strategy of investing in share, scale and relevance, and we are focused on running the company for the long term.”

With that in mind, investors will be keen to see what the first quarter held for American Express.

 

 

Is a post-earnings bounce likely?

The financial services firm, also known as Amex, noted in March that it had “observed a softness in spending volumes in the last few days of February … [that] has accelerated into March and spread more globally”.

Amex had previously highlighted a strong performance in January and February that showed momentum consistent with 2019, but is now expecting revenue growth of between 2% and 4% and earnings to be in a range of $1.90 to $2.10 for the first quarter.

It had projected revenue growth to be in a range of 8% to 10% for 2020 in its fourth-quarter results, with earnings of $8.85 to $9.25 per share.

While Amex’s pre-earnings update has given a wide consensus outlook that the company’s earnings picture won’t be pretty, how the actual results compare to these estimates will the determining factor of its near-term stock price.

Despite a steady performance in January, shares in American Express like most of its financial services peers tanked in the first quarter of 2020, closing the quarter down more than 30%.

30%

American Express' share price fall in Q1 of 2020

  

The stock had been climbing steadily through January and February, boosted by a $0.43 per share dividend announced in early January, and hitting a high of $136.17 in late February.

However, since then the stock has taken a huge hit due to its high credit card lending exposure, which is an area that has been especially vulnerable to the coronavirus market downturn. After a volatile few weeks, it was trading around $81 (through 21 April).

 

Market Cap$66.403bn
PE ratio (TTM)10.31
EPS (TTM)7.99
Quarterly Revenue Growth (YoY)8.06%

American Express share price vitals, Yahoo Finance, 22 April 2020

 

Economic hit not priced into earnings

The fact that the company conducts the majority of its business in the states, 76% of its billings are within the US according to Wealth Insights writing in Seeking Alpha, doesn’t bode well for the severe disruption that’s expected to continue in the quarters ahead.

Indeed, the change in consumer behaviour from the lockdown as having a major impact on spending habits, the publication notes. This would come as some concern to investors as around 45% of American Express’ billings are consumer-driven.

Roughly in line with the stock’s 10-year median PE ratio of 14.64 times, a current earnings multiple of 14.23 times means that these estimates “likely don't effectively factor in the headwinds to operating results reflected in the current macro environment”, according to Wealth Insights.

Meanwhile, ZacksEquity Research gives the $65bn valued firm an average first-quarter earnings estimate of $6.65 per share, representing an 18.9% decline from the same quarter last year. It expects a 0.47% year-over-year sales decrease to $43.35bn.

18.9%

Estimated decline of Q1 earnings since same quarter in 2019

  

The firm also notes that Amex has surpassed earnings estimates in each of the last four quarters by an average 0.87%, giving it a promising outlook.

Given the ongoing uncertainty surrounding the pandemic, Amex has said that it is unable to forecast its future financial results beyond the first quarter. Further updates on its guidance will be announced on the earnings call on Friday. 

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