American Express Rallies To New High After Blowout Q2 Results

American Express NYSE: AXP Amex was among stocks helping to propel the Dow higher Friday, following a better-than-expected earnings report. 

American Express, which comprises 3.23% of the price-weighted index, provides a good illustration of the rebound in business and consumer spending after pandemic-driven declines in 2020. 

The credit card and travel services giant reported second-quarter earnings of $2.80 per share on revenue of $10.6 billion. 

That was a year-over-year gain of a whopping 866% on the bottom line, and 29% on the top line. 

Analysts were expecting earnings to jump 466% - already a huge amount - to $1.64 and revenue increasing by 23% to $9.47 billion.

One element that helped: The bottom-line number reflected the release of $866 million ($658 million after taxes) in credit reserves. According to the company, the release was “primarily driven by the company’s strong credit performance and continued improvements in the macroeconomic outlook.”

In 2020, AmEx had a provision expense of compared with a provision expense of $1.6 billion to cover potential credit card losses due to Covid restrictions. 

American Express topped analysts’ expectations in nine of the past 10 quarters, with the sole exception being the third quarter of 2020. 

Growing Number of Card Members

In the earnings release, CEO Stephen Squeri said, “Demand for our premium, fee-based products continued to be robust, with acquisitions of U.S. Platinum Card Members reaching record levels this quarter. We acquired 2.4 million new proprietary cards in the quarter, while continuing to retain Card Members at rates above pre-pandemic levels.”

He added that cardmember spending accelerated from the previous quarter and exceeded pre-pandemic levels in June, “with the largest portion of this spending growth coming from Millennial, Gen Z, and small business customers.”

Global goods and services spending strengthened in the quarter, growing 16% over the second quarter of 2019. American Express is not alone in comparing current quarterly performances against the same quarter in 2019, to show favorable growth that excludes the aberrational quarters of 2020. 

In a not-so-surprising development, American Express said travel and entertainment spending also rose in the quarter. 

“Increasingly Optimistic”

In the earnings release, Squeri said, “As we look ahead, we are increasingly optimistic that the momentum we’ve generated will continue given the strength we see in our core business, particularly in the U.S., even as the pace of the recovery remains uneven in different regions around the world. Based on current trends, we are confident in our ability to be within the high end of the range of EPS expectations we had for 2020 in 2022.”

American Express shares gapped up at the open Friday, following the report, but trended lower throughout the session. The stock closed at $173.18, a gain of $2.28, or 1.33%. That was at the lower end of its session range. Volume was 88% higher than average. 

American Express has returned 44.30% year-to-date. That puts it fourth among the S&P 500 financial sector names, lagging only Capital One NYSE: COF, Wells Fargo NYSE: WFC and SVB Financial Group NASDAQ: SIVB. 

Analysts’ consensus estimate for third-quarter earnings is $4.83 per share. For the full year, earnings are pegged at $7.62 per share, a 43% year-over-year gain. That’s expected to increase another 21% next year, to $9.23 per share. 

Analysts rate the stock as a buy, with a price target of $162.82. That represents a 1.71% upside. 

The stock cleared a cup-with-handle base, passing a buy point of $150.45 on April 26 in heavier-than-normal turnover. Since then, it’s trended higher along its 10-week moving average. It’s currently out of buy range (despite the Wall Street enthusiasm) although the next successful test of the 50-day line, or even the next base, may offer a chance to add shares.