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AmEx (AXP) Shows Strength so Far in Q4, Issues Long-Term View

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·5 min read
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  • AXP
  • MA
  • WU

American Express Company’s AXP management remains optimistic about strong fourth-quarter 2021 results backed by robust business results for the month of October and November of 2021. AXP thus remains confident about the momentum to sustain in 2022 and also stated certain long-term views.

It’s worth mentioning that results in the month of October and November have already outpaced American Express’ better-than-expected figures reported in the third quarter of 2021. In the third quarter, AXP reported earnings of $2.27 per share, which surpassed the Zacks Consensus Estimate by 27.5% and surged 75% year over year. Total revenues net of interest expense of $10.9 billion beat the consensus mark by 3.6% and improved 25% year over year.

The top line of American Express bore the brunt of the COVID-19 induced volatilities in 2020. Due to the transmission risks induced by the COVID-19 pandemic, severe restrictions were imposed on domestic as well as cross-border travel. This plagued AXP as a substantial portion of its revenues are derived from the Travel and Entertainment (“T&E”) segment. Though pandemic-related woes continue to linger, the global economy seems to be coming out of the woods and the previously-imposed travel bans continue to be somewhat relaxed. This is anticipated to pave the way for increased consumer spending and resumption of business activities. Card Member spending attained a record high in the third quarter of 2021.

Revenues of American Express for the month of October were 8% higher than the figures reported in the pre-pandemic period of 2019. This definitely signals a turnaround for the business of the Zacks Rank #3 (Hold) financial services provider. A gradual economic recovery also keeps AXP’s management confident about its business strength for 2022.

However, an issue that continues to offset the growth of American Express is the moderate recovery of the travel sector. Although T&E spending in third-quarter 2021 more than doubled compared to the 2020 level, it remained 29% lower than the figures reported in the pre-pandemic era.

Long-Term Outlook

Over the long term, management of American Express assumes that travel will bounce back to pre-pandemic levels as there remains suppressed demand for recreational tours. Business travel is also expected to recover completely. This might lead to increased T&E spending, thereby benefiting the top line of AXP.

Other Factors Contributing to the Growth

American Express continues to pursue a host of measures focused on technology advancements, introduction of secured digital solutions and assisting businesses in regulating payments. These initiatives have bolstered the digital suite and global foothold of the financial services provider. AXP has exhibited its commitment in rolling out innovative card offerings and upgradations of the existing ones in order to cater to the evolving needs of its Card Members.

A strong cash position provides American Express with sufficient cash reserves to service debt levels. AXP Express has robust cash generating abilities, which enable it to pursue significant business investments and tactical shareholder-friendly initiatives via share buybacks and dividend payments.

Apart from American Express, other companies like Mastercard Incorporated MA and The Western Union Company WU also remain confident about sound business prospects for 2021. This is clearly reflected in the strong guidance issued by the aforementioned companies related to either the fourth quarter of 2021 or for the full year.

Mastercard continues to benefit on the back of revenue growth, several acquisitions and collaborations with several local and globally renowned organizations, which have enhanced its capabilities and bolstered global foothold. MA has been undertaking significant investments to upgrade digital capabilities. For the fourth quarter of 2021, Mastercard anticipates net revenues to witness growth in mid 20’s year over year.

Western Union boasts of a robust digital arm, which it has built on the back of several digital partnerships and significant investments. For 2021, management anticipates earnings per share to lie within $2.05-$2.10, higher than the prior guidance $2-$2.10. The mid-point of the revised guidance indicates growth of 11% from the 2020-end reported figure. The company expects constant currency revenue growth of around 3-4% for 2021 compared with the prior outlook of “mid-single digit increase” (against a 3% decline in 2020).

Shares of American Express have gained 42.3% in a year compared with the industry’s growth of 25.3%.

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Zacks Investment Research

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While shares of Mastercard has inched up 0.3% in a year, Western Union's stock has lost 26.2% in the same time frame.

A Stock to Consider

A better-ranked player in the finance space includes The Blackstone Group Inc. BX, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in New York, Blackstone is a well-renowned investment firm with assets under management (“AUM”) of $730.7 billion.as of Sep 30, 2021. A diversified product suite, revenue mix and superior position in the alternative investments space are likely to continue supporting AUM growth. The scale, diversified business, sustained record of strong investment performance and sound client relationships poise the investment firm well for growth in the days ahead.

BX’ bottom line for 2021 has witnessed five upward estimate revisions in the past 60 days and no movement in the opposite direction. During this time period, its earnings estimates have risen 17.6%. Blackstone beat earnings estimates in each of the last four quarters, the average surprise being 23.74%.


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