It has been a tough year for American Express’ [AXP] share price, as the payment services business has been hit hard by the coronavirus pandemic. Having reached an all-time intraday high of $138.04 on 20 February, American Express’ share price halved by 23 March, and has staged only a partial recovery in the subsequent months. Will its third quarter earnings report reinvigorate American Express’ share price?
A surge to $112.69 in early June was short-lived, and American Express’ share price has been up and down ever since, spending all of July below the $100 mark following a disappointing second quarter earnings report.
American Express’ share price gained value in late August only to dip again by the end of September. The stock closed at $101.43 on 21 October — up 6.7% from the recent trough of $95.05 on 24 September, but down 18.6% on the $124.66 at which the stock opened 2020.
American Express’ share price has underperformed the markets generally. Since the start of the year, the S&P 500 has climbed 6.3%, and the Nasdaq almost 30%, while the Dow Jones dropped 1.1% as of 21 October’s close. American Express’ share price, meanwhile, is down 17% during the same period.
A mixed year
During its second quarter earnings report call, Stephen Squeri, CEO of American Express, highlighted the fact that COVID-19 had pushed spending values down by 40% year-over-year in April, which severely impacted top- and bottom-line results.
Revenues fell more than 25% from $10.3bn in Q1 to $7.7bn in Q2, with net income down 30% over the same period to $257m.
The economic outlook for the second half of the year is slightly more positive.
Lockdown restrictions began to ease in the US over the summer and consumer spending rose 1.5% in July and 1.0% in August — beating a forecast of 0.8% in the latter month.
US unemployment rates have fallen steadily since April, but the rate of decline appears to be slowing. With 12.6 million Americans still unemployed in September, 4.4% more than in February, the signs of economic recovery are not as rapid as hoped.
As such, American Express’ earnings report on 23 October is expected to deliver increased revenue compared with Q2 2020, but performance will likely still lag behind pre-pandemic levels. Seeking Alpha estimates revenue of $8.70bn, an increase of 13.4% on Q2, with EPS expected to rise from $0.29 to $1.34.
American Express' estimated Q3 revenue (Seeking Alpha)
Zacks and CNN Money report similar estimates on revenue. While these numbers seem encouraging within the context of 2020, the forecasts, if accurate, would represent a fall of around 20% in revenue and 35% in EPS from the same quarter in 2019.
Perhaps as a response to the encouraging signs from the economy as a whole, some analysts have recently upgraded their estimates for American Express’ share price. On 6 October, Jefferies Financial Group upgraded their EPS estimate from $0.59 to $0.94, following William Blair’s revision of 29 September from $1.39 to $1.42. Zacks analysts suggest that American Express could continue its streak of surprisingly positive earnings reports.
Analysts play it cool
While economic recoveries struggle to gain momentum, analysts on the whole are cool on American Express, with the consensus among 28 polled by CNN Money being to hold the stock.
Nine of these rated the stock a Buy and one an Outperform, though one rated it an Underperform and three recommended to sell the stock.
The consensus view is that American Express’ share price will neither gain nor lose much value over the next year.
Among 24 analysts offering 12-month price forecasts for American Express’ share price, the median price target was $105— representing a 3.5% increase on its 21 October’s closing price.
|PE Ratio (TTM)||20.98|
|Quarterly Revenue (YoY)||-38.70%|
American Express share price vitals, Yahoo Finance,22 October 2020