Today is shaping up negative for American Express Company (NYSE:AXP) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. At US$88.32, shares are up 6.2% in the past 7 days. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.
Following the latest downgrade, American Express' 23 analysts currently expect revenues in 2020 to be US$38b, approximately in line with the last 12 months. Statutory earnings per share are anticipated to crater 51% to US$3.26 in the same period. Prior to this update, the analysts had been forecasting revenues of US$43b and earnings per share (EPS) of US$5.60 in 2020. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.
The consensus price target fell 7.2% to US$102, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic American Express analyst has a price target of US$129 per share, while the most pessimistic values it at US$76.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await American Express shareholders.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that sales are expected to reverse, with the forecast 0.6% revenue decline a notable change from historical growth of 5.6% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.0% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - American Express is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for American Express. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that American Express' revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
As you can see, the analysts clearly aren't bullish, and there might be good reason for that. We've identified some potential issues with American Express' financials, such as recent substantial insider selling. For more information, you can click here to discover this and the 2 other risks we've identified.
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