Technology

Why Is American Express (AXP) Down 0.5% Since Last Earnings Report?

A month has gone by since the last earnings report for American Express (AXP). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is American Express due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

American Express Q2 Earnings Beat Estimates, Decline Y/Y

American Express’ second-quarter 2020 earnings of 29 cents per share, beat the Zacks Consensus Estimate by 123%. However, the bottom line plunged 86% year over year.

The quarter also reflected softness in spending volumes as a result of the adverse COVID-19 impact.

Further, total revenues of $7.7 billion missed the Zacks Consensus Estimate by 2.5% and also declined 28.7% year over year. The top line was affected by a drop in Card Member spending and lower average discount rate.

Meanwhile, total expenses of $5.5 billion decreased 29% year over year owing to lower customer engagement costs on the back of limited Card Member spending as well as controlled usage of travel-related Card Member benefits.

Total provision of $1.6 billion soared 86% year over year as the company added $628 million to its capital reserves in a bid to strengthen its balance sheet in the light of a significant deterioration in the global macroeconomic outlook as a result of the coronavirus adversity.

Return on equity of 18.9% declined 1450 basis points year over year.

Lackluster Performance at Segments

American Express’ Global Consumer Services segment reported net income of $527 million, down 40% year over year. Total revenues, net of interest expenses of $4.6 billion decreased 23% year over year, reflecting a fall in Card Member spending and a lower average discount rate from the prior-year levels.

Global Commercial Services incurred a net loss of $60 million against net income of $561 million a year ago. Total revenues, net of interest expenses, were $2.3 billion. This, in turn, plunged 30.3% year over year, mirroring a decline in Card Member spending and a lower average discount rate.

Global Merchant and Network Services’ net income plummeted 88% year over year to $66 million in the reported quarter. Total revenues and net of interest expenses were down 41% year over year to $929 million.

Strong Financial Position (as of Jun 30, 2020)

Cash and cash equivalents were $41 billion, up 52% year over year. Total long-term debt of $49 billion was down 15.5% year over year.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.93% due to these changes.

VGM Scores

At this time, American Express has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, American Express has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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