American Express (NYSE:AXP) is among the last banking sector companies to report its third-quarter earnings. Is the market wrong if it’s selling American Express now? I would say yes, and I’m bullish on AXP stock because the company is breaking its own revenue and income records.
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American Express is a banking and credit card company that’s been around for generations. The company’s quarterly results are a pretty good litmus test for the U.S. consumer. That’s because if people aren’t using American Express’s borrowing services and credit cards, it’s a sign that consumers are probably having financial problems.
At the same time, if American Express surpassed Wall Street’s expectations, AXP stock should go up – right? Hold your horses, as the market can be irrational sometimes. Ultimately, you’ll encouraged to learn all of the relevant facts about American Express and decide for yourself whether there’s a buy-the-dip opportunity here.
Great News for American Express
October 20 was a big day for American Express, as the company reported its third-quarter 2023 financial results. Suffice to say, there’s no shortage of positive news to report.
Let’s start off with the basics. In Q3 2023, American Express’s revenue increased 13% year-over-year to $15.4 billion, a result that was in line with analysts’ expectations. So far, so good.
Next, American Express posted earnings of $3.30 per share, up 34% year-over-year. That’s a terrific result, and it’s considerably higher than the consensus estimate of $2.95 per share.
Were U.S. consumers in the mood to spend, though? Overall, card member spending rose 7% year-over-year on an adjusted currency exchange rate, while spending on travel and entertainment increased 13% year-over-year on a currency-adjusted basis. Thus, it’s fair to conclude that the consumer isn’t struggling too badly – or at least that people are still willing to spend and borrow money.
Plus, even though American Express is an old company, it still seems to be able to attract young customers. As American Express CEO Stephen J. Squeri pointed out, spending by Generation Z and Millennial consumers “was up 18 percent in the U.S.”
Besides, American Express broke multiple company records in Q3. Specifically, Squeri boasted that American Express “reported another quarter of record revenues and earnings per share.” Moreover, the company’s press release stated that this was American Express’s sixth consecutive quarter of record revenue.
The Market’s Reason for Selling AXP Stock
Despite all of the aforementioned positive aspects of American Express’s financial report, AXP stock still fell by over 5% today. So, was there something terrible hidden in American Express’s press release?
I actually struggled to figure out why the market would react so negatively to American Express’s earnings report. The best sell-off excuse I could find was that American Express had set aside more funds to cover borrowers who weren’t paying off their loans.
According to the press release, American Express’s third-quarter consolidated provisions for credit losses totaled $1.2 billion versus $778 million in the year-earlier quarter. Perhaps, then, U.S. borrowers are having problems, especially if they’re delinquent in repaying their loans.
That’s a troubling sign, no doubt. However, I wouldn’t conclude that the increase in provisions for credit losses outweighs American Express’s record top- and bottom-line results. It just feels like the market is cherry-picking one data point and ignoring all of the rest.
Is AXP Stock a Buy, According to Analysts?
On TipRanks, AXP comes in as a Moderate Buy based on eight Buys, three Holds, and two Sell ratings assigned by analysts in the past three months. The average American Express stock price target is $178.67, implying 26.2% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell AXP stock, the most profitable analyst covering the stock (on a one-year timeframe) is Dominick Gabriele of Oppenheimer, with an average return of 15.31% per rating and a 53% success rate. Click on the image below to learn more.
Conclusion: Should You Consider AXP Stock?
Sometimes, the market can over-focus on one piece of information. American Express is allocating more funds to cover delinquent borrowers, but the company is also raking in record revenue and income.
In the final analysis, you have to decide which data points are the most important ones. Overall, I liked what I saw in American Express’s quarterly results. If you agree with my generally positive assessment, then feel free to consider a buy-the-dip position in AXP stock.
