Sometimes you can do everything right and still lose. It's one of the great tragedies of life that this is so, but American Express (NYSE:AXP) released its earnings report and discovered that it's still true that sometimes even winning isn't enough to get you forward. Still though, the numbers that emerged should give any investor hope for a brighter future.
A Win That Wasn't Quite Enough of a Win
On the surface, it's hard not to like the numbers that emerged from American Express, especially given conditions on the ground right now. The company brought in earnings of $1.76 per share, against expected earnings of $1.29. It also turned in total revenue of $9.35 billion, which beat estimates by a decent $30 million.
Solid numbers all around, and complete vindication against estimate consensus, but there's an elephant in the room that must be addressed. These numbers, compared to the same time last year, are a woeful loss. For instance, the earnings figures from this year were enough to beat consensus estimates, but that $1.76 per share doesn't compare well at all to last year's fourth quarter net income figure of $2.03 per share.
Those numbers only get worse the farther in you look. Consolidated total revenues, net of interest expenses, were down 18% against this time last year, with this year's number coming in at $9.4 billion against $11.4 billion this time last year.
Bright spots did emerge for the figures. Better than expected credit losses meant the company could release reserves of $674 million amid declining net figures in write-offs as well as better credit performance. Consolidated expenses were also down, as the company didn't need to engage in so much customer engagement thanks to declining usage.
The company noted that its travel and entertainment revenues had taken a major hit, but this was offset by significantly increased online spending, which was pretty much the theme for 2020.
Analysts Looking Increasingly Bullish
Meanwhile, the broader analyst pool—based on our latest research—is carrying on its increasingly bullish sentiment on American Express. The company is still rated a “hold” on average, but the ratios comprising that rating are the highest they've been in six months. Six months ago, American Express held three “sell” ratings, 11 “hold” and eight “buy”. That slipped a bit three months ago, with five “sell”, 10 “hold” and nine “buy”. Things improved a month ago, going to four “sell”, 12 “hold” and 10 “buy”, and now, we have just two “sell” ratings to consider along with an even split of 12 “hold” and 12 “buy.”
The price target has been going up for the last three months, going from $106.96 six months ago to $105.22 three months ago. A month ago it stood at $112.04 before reaching today's target of $117.12. This is also the first time that the price target has reflected downside, as the company's share price currently sits at $118.87 as of this writing.
Recovery In the (Credit) Cards?
Even American Express, as expressed by CEO and Chairman Stephen J. Squeri, is exercising a very cautious optimism about its future going forward. We all know what went wrong with American Express' 2020, as it was the same thing that went wrong with all of our 2020: COVID-19, and the government reaction therein. Two of American Express' biggest revenue points were all but shut down throughout 2020, and though the company could make some headway with online spending—which shot up like a rocket—the end result is still disappointing.
Even should recovery take place, and it looks like that's a distinct possibility with even the holdouts in government—Lightfoot, Cuomo, Whitmer et al—looking to reopen, this rising tide won't just lift American Express' boat. It will also give support to American Express' key rivals, Mastercard (NYSE:MA) and Visa (NYSE:V), not to mention some of the lesser competitors. It will go a long way toward getting American Express back to its previously-seen levels, however.
The numbers were about as good as American Express could hope for given the conditions. Even as conditions improve, though, it won't necessarily give American Express much edge in the broader market, and that could be a problem. Still, for those who are already in, it's a good time to stay in, as recovery is likely and should bring at least some gains along with it.
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