American Express Stock To Beat The Expectations In Q3

American Express (NYSE: AXP) is scheduled to report its fiscal Q3 2023 results on Friday, October 20, 2023. We expect American Express to edge past the consensus estimates of revenues and earnings. The credit card giant reported mixed results in the last quarter, with earnings beating expectations but revenues missing the mark despite a 12% y-o-y growth. The top line benefited from higher interest rates and revolving loan balances, followed by an increase in the billed business, processed volumes, and premium card portfolios. We expect the third quarter results to follow the same trend. Our interactive dashboard analysis on American Express’ Earnings Preview has more details. 

Amid the current financial backdrop, AXP stock has shown strong gains of 30% from levels of $120 in early January 2021 to around $155 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the increase in AXP stock has been far from consistent. Returns for the stock were 35% in 2021, -10% in 2022, and 3% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that AXP underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financial sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AXP face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that American Express’ valuation is $182 per share, which is 19% above the current market price of close to $153. 

(1) Revenues to remain slightly above the consensus estimates

American Express’ revenues grew 17% y-o-y to $29.34 billion in the first two quarters of 2023. 

• Non-interest revenues contribute close to 80% of the total revenues. It increased 13% y-o-y, primarily driven by growth in billed business and processed volumes. We expect the Q3 results to be on similar lines.
• The net interest income (NII) increased 34% y-o-y over the same period. It was due to higher net interest rate margin and loan growth. We expect the same trend to continue in Q3.
• Overall, we forecast American Express’s revenues to touch $60.75 billion in FY2023.

Trefis estimates American Express’s fiscal Q3 2023 revenues to be around $15.45 billion, marginally above the $15.37 billion consensus estimate. 

(2) EPS to beat the consensus

American Express Q3 2023 adjusted earnings per share (EPS) is expected to be $2.98 per Trefis analysis, almost 1% above the consensus estimate of $2.94. The adjusted net income decreased 2% y-o-y to $3.99 billion in the first six months of FY 2023. It was due to a significant build-up in the provisions for credit losses. We expect the same trend to drive the third-quarter results. Overall, American Express is likely to report an annual GAAP EPS of $11.13 in FY2023.  

(3) The stock price estimate is 19% higher than the current market price

We arrive at American Express’ valuation, using an EPS estimate of around $11.13 and a P/E multiple of just above 16x in fiscal 2023. This translates into a price of $182, which is 19% above the current market price.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

[1] Month-to-date and year-to-date as of 10/17/2023
[2] Cumulative total returns since the end of 2016