NEW YORK (AP) -- Shares of American Express Co. surged Thursday after the financial services company posted stronger-than-expected earnings for the third quarter and some analysts raised their estimates for its future profits.
THE SPARK: American Express reported Wednesday its net income rose 9 percent in the July-September period, as cardholders spent more in the U.S. and elsewhere. The results beat Wall Street estimates.
Net income increased to $1.36 billion, or $1.25 a share, from $1.25 billion, or $1.09 a share, a year earlier. Revenue increased about 6 percent to $8.3 billion, from about $7.86 billion. Analysts polled by FactSet had expected, on average, earnings of $1.22 a share on revenue of $8.23 billion.
THE BIG PICTURE: American Express cardholders tend to be more affluent than other credit card users, which is a reason the company has done well as the U.S. economy has gradually improved.
Unlike Visa and MasterCard, which only process transactions, American Express issues its own cards. When cardholders charge more on their AmEx cards, the company earns even more in interest income and a variety of fees.
American Express announced a restructuring plan in January that called for cutting 5,400 jobs, mostly in travel services. While its cardholders have been charging more, the business-travel segment has been squeezed as companies ask employees to make travel arrangements themselves online.
THE ANALYSIS: Janney Capital Markets analyst Sameer Gokhale raised his estimate for the company's fourth-quarter earnings to $1.23 a share from the previous $1.19, for 2013 earnings to $4.89 from $4.83 and for 2014 to $5.48 from $5.36. The increases mainly reflect stronger growth in revenues than Janney had previously forecast, partly offset by higher-than-expected expenses. Gokhale also raised the fair value estimate for AmEx stock to $79 from $77. The "Neutral" rating on the stock was maintained.
At William Blair, analysts Robert Napoli, Brian Hogan and Cristopher Kennedy raised their estimate for 2013 to $4.90 a share from $4.86, for 2014 to $5.40 from $5.36 and for 2015 to $5.97 from $5.92. Again, the increases mostly reflect higher revenues. The analysts maintained their "Outperform" rating on the stock.
By contrast, James Friedman and Xin Yang at Susquehanna Financial Group reduced their estimate for 2013 to $4.88 a share from $4.96, reflecting increased expenses in the third quarter. They did increase their estimate for 2014 revenue to $34.3 billion from $34.2 billion and their 2014 earnings estimate to $5.31 a share from $5.21, expecting credit quality of loans to improve. Susquehanna has a "Neutral" rating on AmEx stock.
SHARE ACTION: Up $3.92, or about 5 percent, at $80.24 in late trading. The stock is up about 40 percent so far in 2013.