American Express Stock Is Up 33% YTD, What To Expect From Q2 Earnings?

American Express (NYSE: AXP) stock gained 33% YTD, as compared to the 19% rise in the S&P500 index. In sharp contrast, American Express’ peer Capital One (NYSE: COF) is up 15% YTD. Overall, AXP is scheduled to report its fiscal Q2 2024 results on Friday, July 19, 2024. We expect American Express to post mixed results, with revenues topping the consensus but earnings being just below (match) the expectations. The credit card giant surpassed the street estimates in the last quarter. It reported total revenues of $15.8 billion – an 11% y-o-y increase, thanks to growth in both the net interest income (NII) and noninterest revenues. The NII benefited from improvement in the card loan balances and higher net interest yield. Similarly, the noninterest revenues were up due to higher billed business and growth in premium card portfolios. We expect the same momentum to drive Q2 results. Our interactive dashboard analysis on American Express’ Earnings Preview has more details. 

Amid the current financial backdrop, AXP stock has seen extremely strong gains of 110% from levels of $120 in early January 2021 to around $250 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. Admirably, AXP stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 35% in 2021, -10% in 2022, and 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% 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 Financials sector including JPM, V, 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 see a strong jump?

Our forecast indicates that American Express’ valuation is $228 per share, which is 9% below the current market price of close to $250.

(1) Revenues to top the consensus estimates

American Express’ revenues grew 14% y-o-y to $60.5 billion in FY 2023.

• The company derives around 80% of its revenues from non-interest income. It rose by 10% y-o-y in 2023 and 6% y-o-y in Q1 2024. We expect the same trend to continue in the second quarter.
• The net interest income (NII) increased 33% y-o-y in 2023. Further, it gained 26% y-o-y in Q1 due to loan growth and higher net interest margin. We expect the Q2 results to be on similar lines.
• Overall, we forecast American Express’s revenues to touch $66.36 billion in FY2024.

Trefis estimates American Express’s fiscal Q2 2024 revenues to be around $16.71 billion, 1% above the $16.59 billion consensus estimate.

(2) EPS to remain just below (match) the street estimates

American Express Q2 2024 adjusted earnings per share (EPS) is expected to be $3.23 per Trefis analysis, marginally below the consensus estimate of $3.25. The adjusted net income increased 12% y-o-y to $8.25 billion in FY 2023. Similarly, the figure improved by 34% y-o-y to $2.4 billion. It was due to lower noninterest expenses as a % of revenues and growth in the top line, partially offset by a 20% rise in the provisions figure. We expect the same trend to continue in the second-quarter results. Overall, American Express is likely to report an annual GAAP EPS of $12.94 in FY2024. 

(3) The stock price estimate is 9% lower than the current market price

We arrive at American Express’ valuation, using an EPS estimate of around $12.94 and a P/E multiple of just below 18x in fiscal 2024. This translates into a price of $228, which is 9% below 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] Returns as of 7/17/2024
[2] Cumulative total returns since the end of 2016

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