Credit card company American Express (NYSE:AXP) may have fallen short of fourth-quarter earnings estimates, but its stock rose on Friday on what was an overall strong quarter and promising outlook.
American Express saw strong year-over-year gains in revenue and earnings, although they were not quite as good as analysts had expected. Nonetheless, the stock price was up more than 7% on Friday due to guidance that revealed the company’s resilience in what is expected to be a more challenging economic environment.
Record revenue and profit in 2023
While American Express did not top estimates, the reason appears to be an unforeseen one-time charge of $100 million related to the devaluation of the Argentine peso. Chairman and CEO Steve Squeri told Yahoo Finance on Friday that he didn’t think Wall Street analysts had this expense in their estimates.
That aside, American Express had an excellent quarter with its revenue up 11% year over year to $15.8 billion and net income rising 23% to $1.9 billion, or $2.62 per share. American Express saw a 31% increase in net interest income to $3.6 billion due to an increase in loans and higher interest rates. Unlike Visa (NYSE:V) and Mastercard (NYSE:MA), American Express is a lender, card issuer and payment processor, so it collects both fees and interest income. The other two firms are just payment processors.
Speaking of fees, American Express recorded a 5% year-over-year jump in discount fees to $8.6 billion. Discount fees are charged to merchants each time the card is used. Card-member fees were also up 17% to $1.9 billion, and service fees climbed 10% to $1.3 billion.
For the full fiscal year, American Express posted record revenue and earnings. The company generated $60.5 billion in revenue, up 14% from the previous year, and $8.4 billion in net income or $11.21 per share, up 11% from 2022. The firm added 12.2 million new card customers in 2023, bringing the total number of cards in force on its network to over 140 million.
“We delivered record revenues and profits in 2023, building on the momentum we’ve achieved since we announced our growth plan in January 2022,” Squeri said in the earnings release. “We continued to drive strong customer engagement, and demand for our premium products remained robust.”
Company expects 13% to 17% earnings growth in 2024
In addition to its strong quarter, American Express received a lot of positive investor sentiment for its 2024 outlook. The company expects revenue growth of 9% to 11% in 2024 and earnings per share (EPS) to rise 13% to 17% to somewhere between $12.65 and $13.15 per share.
Longer term, American Express is targeting 10% annual revenue growth and EPS growth in the mid-teens.
The other positive looking forward is the company’s credit metrics. While its provisions for credit losses were up last year, rising to $4.9 billion from $2.2 billion the previous year, its write-off and past-due rates are manageable at 2.2% and 1.3%, respectively, which are below pre-pandemic levels.
That’s not atypical, as American Express tends to outperform in a slower-growing economic environment because it caters to a wealthier clientele that may not be as impacted by a recession or a sputtering economy. That’s not to say a recession or slowdown is definitely coming, but if it does, American Express tends to navigate such periods fairly well.
American Express is an excellent company in an industry where it has a huge brand, few competitors and a great niche. Based on its fairly reasonable-to-low valuation and robust growth prospects, it looks like a solid buy and hold.
