Shares in American Express depreciated 3.6% on Friday after the credit card issuer posted a 40% decline in quarterly profit and forecast that business travel is not going to recover until late 2021 or early 2022.
AmEx’s (AXP) third-quarter profit plunged 40% to $1.07 billion, or $1.30 per share from the same period last year, falling short of analysts’ expectations of $1.35 per share. Total revenues, net of interest expense, dropped 20% to $8.8 billion year-on-year, primarily due to lower Card Member spending.
Overall spending on AmEx cards was down 19% at $248.7 billion during the reported quarter. Travel and entertainment (T&E) related spending dived 69% year-on-year, while non-T&E-related spending was up 1% during the same period. Online consumer retail spending was up 32% over last year.
Consolidated provisions for credit losses amounted to $665 million, down 24% from $879 million a year ago.
“While our business continues to be significantly affected by the impacts of the pandemic, our third-quarter results have increased our confidence that our strategy for managing through the current environment is the right one,” said AmEx CEO Stephen J. Squeri. “Since the lows of mid-April, we have seen a steady recovery in our overall spending volumes. In fact, we had positive year-over-year growth in non-T&E spending, which has long accounted for the large majority of our overall volumes.”
“While credit remains strong, with delinquencies and net write-offs at the lowest levels we have seen in a few years, we remain cautious about the direction of the pandemic and its impacts on the economy, which is reflected in our reserve levels,” Squeri added.
Squeri said he expects to see a tick-up in consumer behavior from a travel perspective toward the end of the year, or first quarter of next year. In terms of business travel, the CEO projects a recovery not until late 2021 or early 2022.
AmEx shares have dropped 19% this year as the credit card issuer’s revenue was hurt by a sharp drop in T&E spending due to the stringent COVID-19 restrictions. Looking ahead, the $105.50 average analyst price target implies 4.5% upside potential over the coming year.
Earlier this month, Susquehanna analyst James Friedman downgraded the stock to Hold from Buy with a $110 price target, as a recovery in spending to pre-pandemic levels looks far away.
“It would be hard for AXP to do better than their merchants, so consensus ‘21 revenue up 11% looks full to us,” Friedman wrote in a note to investors. He said growth of 7.5% appears more reasonable after looking at projections for the airline, hotel, dining, and retail industries.
Overall, Wall Street analysts are sidelined on the stock. The Hold consensus breaks down into 5 recent Hold ratings, 4 Sell ratings versus 3 Buy ratings (See AXP stock analysis on TipRanks).
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