What’s in the cards for the first quarter of American Express?

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NOTNow that we’re in the middle of Q1 2022 earnings season, there’s a vast sea of ​​companies reporting quarterly results every day. Q1 comes at a critical moment; investors are unsure which direction the market wants to take as we find ourselves in one of the most unique economic environments in recent history.

Supply chain bottlenecks, soaring energy prices and other economic constraints spoiled the fun throughout the quarter. Investors are very concerned about how companies have coped with this unfavorable environment.

On deck to report this Friday before the market opens is American Express AXP. American Express is a leading issuer of personal, small business and corporate credit cards. The Company’s travel-related offerings include travelers checks, credit cards, corporate and personal travel planning services, tour packages, and hotel and car rental booking agencies.

Year-to-date, AXP shares have shown stellar strength, rising nearly 17% in value and easily outpacing the nearly 6% decline in the S&P 500. Needless to say, AXP has been a bright spot. hope in a dark market. Let’s take a look at the first quarter forecast and analyze what could happen for American Express.

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Key indicators

A vital metric for American Express is rebate revenue. Discount revenue represents money earned from fees charged to merchants with whom the company has entered into a card acceptance agreement for processing cardholder transactions.

Looking at the data, growth in this metric has been solid over the past four quarters. In its fourth quarter report, AXP raked in nearly $7.5 billion in rebate revenue, a quarter-over-quarter increase of 12%. Additionally, rebate revenue grew 35% year-over-year from 2020 to 2021. For 2022, the high estimate for annual rebate revenue currently sits at $31 billion.

Another essential source of income for American Express is interest income. This metric has shown solid growth over the past four quarters, similar to discount revenue. In the fourth quarter of 2021, the company’s total interest income reached $2.4 billion, a quarter-over-quarter increase of 4.3%. However, when looking at year-over-year percentages, AXP’s interest income was down 10% from 2020 to 2021. Heading into the first quarter, an improving economy and higher levels of consumer spending will likely push this measure higher.

The last key metric investors need to know ahead of Q1 is network volume. Essentially, this metric tells us how much consumers are using their cards. In the fourth quarter, AXP reported total network and processing volumes of $368.1 billion, a significant increase of 11.3% quarter over quarter. Year-over-year, the metric jumped 24%, which also bodes well for the health of the business. Additionally, the total number of base cards in effect increased to 100.7 million in 2021, a 10% year-over-year increase from 2020.

Previous Earnings Results

In its most recent quarter, AXP smashed the earnings per share estimate of $1.78 per share by nearly 23% and reported quarterly earnings of $2.18 per share. The company has exceeded earnings expectations in each of its past four quarters, achieving a surprising four-quarter average EPS of 46%.

American Express – EPS Surprise

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Image source: Zacks Investment Research

Since July 2021, American Express has beaten sales estimates for three consecutive quarters by at least 3.5%. Additionally, in Q4 2021, the company raised $12.2 billion, easily beating the $11.6 billion estimate by almost 5%.

Q1 EPS and revenue estimates

Let’s take a look at what analysts predict for American Express in Q1 and FY22.

Zacks consensus estimate for the first quarter currently sits at $2.43 per share, reflecting a decline in earnings of nearly 12% year over year. Over the past 60 days, the first quarter EPS estimate edged up 0.8% on three positive estimate revisions. Additionally, the current year consensus estimate trend rose 0.2% to $9.74 per share, reflecting a 2.8% year-over-year earnings decline.

Zacks Investment Research
Image source: Zacks Investment Research

Zacks Consensus’ sales estimate for the first quarter is $11.7 billion, representing a significant 30% increase in revenue from the first quarter of 2021. Sales for the year 2022 also looks robust; Zacks Consensus’ $50.4 billion sales estimate shows a notable 19% year-over-year increase from FY21.

American Express quarterly revenue

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Image source: Zacks Investment Research

Visa

Let’s step away from AXP and look at one of its peers, Visa, Inc. V. Visa is a global payments technology company that connects consumers, businesses, banks and governments, enabling them to use the digital currency instead of cash and checks.

Over its past four quarters, Visa has surprisingly average EPS of just under 9%, and in its latest report, Visa beat the $1.69 per share estimate by 7% and reported quarterly EPS of 1 $.81. Over the past 60 days, six analysts have revised down their Q1 EPS estimates; the first-quarter EPS estimate for V now sits at $1.65 per share. Additionally, analysts predict 20% year-over-year earnings growth for the current year. Visa is a Zacks Rank #3 (Hold) with an overall VGM score of a C.

Visa Inc. Price, Consensus and EPS Surprise

Visa Inc. Price, Consensus and EPS Surprise

Visa Inc. price-consensus-eps-surprise-chart | Quote from Visa Inc.

Conclusion

In 2021, AXP’s investment strategy enabled the company to achieve record levels of cardholder spending, maintain customer retention and satisfaction above pre-COVID levels, to increase new card acquisitions, grow loan balances and deepen its digital engagement with customers. Additionally, American Express plans to increase its quarterly dividend on outstanding common stock by approximately 20%, from 0.43 cents to 0.52 cents beginning in the first quarter of 2022.

“As we look to the future, we are increasing our aspiration to generate sustainable long-term revenue and profit growth with a new growth plan that will allow us to continue to invest at high levels in our customers, our brand and our talents. Our performance to date and the lessons we have learned from it have reinforced our belief in this strategy,” said Stephen J. Squeri, Chairman and Chief Executive Officer, in the fourth quarter 2021 earnings release.

Overall, critical metrics for AXP posted strong quarter-over-quarter growth rates, but Q1 EPS estimates reflect a material decline in earnings from the first quarter of 2022. , annual profits for 2022 are expected to decline by a small percentage.

Earnings estimates look solid and the company has provided encouraging indications for the future. Investors should always exercise caution heading into an earnings release, especially when quarterly EPS is expected to decline in double digits year-over-year. AXP is currently a Zacks Rank #3 (Hold) with an overall VGM score of a B.

American Express Company Price, Consensus, and EPS Surprise

American Express Company Price, Consensus, and EPS Surprise

American Express Company price-consensus-eps-surprise-chart | American Express Company Quote

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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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