American Express (AXP) Tops on Q3 Earnings, Reaffirms View
American Express Company AXP reported third-quarter 2023 earnings per share (EPS) of $3.30, beating the Zacks Consensus Estimate by 11.5%. The bottom line increased 33.6% year over year.
For the quarter under review, AXP’s total revenues net of interest expense increased 13.5% year over year to $15,381 million. However, the top line missed the Zacks Consensus Estimate by 0.2%.
The better-than-expected third-quarter 2023 earnings benefited from continued business momentum, better volumes and higher card member spending. Increased compensation costs and higher operating and customer engagement costs partially offset the positives.
American Express Company Price, Consensus and EPS Surprise
American Express Company price-consensus-eps-surprise-chart | American Express Company Quote
Q3 Operational Performance
Due to higher spending, network volumes jumped 7% year over year to $420.2 billion in the third quarter. Total interest income was $5,240 million in the third quarter, up 55% year over year. Provision for credit losses amounted to $1,233 million against the year-ago quarter’s provision benefit of $778 million. Setting aside such a huge amount is expected to help the company navigate through a volatile global economy.
Total expenses of $11,048 million increased 7% year over year and were lower than our estimate of $11,546 million, primarily due to higher client engagement costs stemming from increased network volumes and higher service costs.
Segmental Performances
The U.S. Consumer Services segment recorded a pre-tax income of $1,584 million for the third quarter, witnessing a 23.1% rise from a year ago.The metric beat our estimate of $1,343.8 million. Total revenues net of interest expense increased 16% to $7,208 million, courtesy of an increased net interest income from higher average loan volumes, as well as rising card member spending.
The Commercial Services segment delivered a pre-tax income of $852 million, which increased 10.1% from a year ago. The metric beat our estimate of $850.3 million. Total revenues net of interest expense was $3,747 million, which climbed 7%, attributable to higher average loan volumes.
The International Card Services segment recorded a pre-tax income of $387 million for the third quarter, up 133.1% from a year ago. Total revenues net of interest expense increased 17% to $2,643 million, driven by a rise in card member spending and higher revenues from card fees.
The Global Merchant and Network Services segment reported a pre-tax net income of $986 million, which increased 24.5% from the third quarter of 2022. Total revenues net of interest expense increased 11% to $1,851 million from the year-ago period, primarily driven by growing network volumes.
Corporate and Other posted a third-quarter pre-tax loss of $709 million, which deteriorated from the prior-year pre-tax loss of $582 million.
Balance Sheet (as of Sep 30, 2023)
American Express exited the third quarter with cash & cash equivalents of $44 billion, which increased from $34 billion at 2022-end. Total assets rose to $251 million from $228 million at 2022-end.
As of Sep 30, 2023, AXP’s long-term debt was $46 billion, up from $43 billion in fourth-quarter 2022. It also had a short-term borrowing of $2 billion.
Return on average common equity improved to 38% in the third quarter from 34.1% in the fourth quarter.
Outlook
American Express reaffirmed 2023 revenue growth guidance of 15-17% from the 2022 level of $52,862 million. It expects 2023 EPS to be in the range of $11-$11.40, increasing from the 2022 level of $9.85. In the long term, the company foresees revenue growth of more than 10% and earnings growth in the mid-teens.
The bullish outlook despite economic volatilities highlights the company’s confidence in its business momentum and consumer spending growth. However, it is building provisions and preparing for any potential defaults.
Zacks Rank and Key Picks
American Express currently has a Zacks Rank #3 (Hold).
Investors interested in the broader finance space can also check better-ranked companies like Axos Financial, Inc. AX, Blue Owl Capital Corporation OBDC and Globe Life Inc. GL. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The bottom line of Axos Financial outpaced estimates in each of the last four quarters, the average surprise being 11.6%. The Zacks Consensus Estimate for AX’s 2023 earnings and revenues suggests an improvement of 6.9% and 8.6%, respectively, from the year-ago reported figures.
Blue Owl Capital’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 4.5%. The Zacks Consensus Estimate for OBDC’s 2023 earnings and revenues suggests an improvement of 31.2% and 28.7%, respectively, from the year-ago reported figures. The consensus mark for OBDC’s 2023 earnings has moved 1% north in the past 60 days.
The bottom line of Globe Life outpaced estimates in each of the last four quarters, the average surprise being 2.2%. The Zacks Consensus Estimate for GL’s 2023 earnings and revenues suggests an improvement of 28.7% and 4.1%, respectively, from the year-ago reported figures.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Express Company (AXP) : Free Stock Analysis Report
AXOS FINANCIAL, INC (AX) : Free Stock Analysis Report
Globe Life Inc. (GL) : Free Stock Analysis Report
Blue Owl Capital Corporation (OBDC) : Free Stock Analysis Report
