Wednesday, April 20, 2011

American Express Co. (NYSE: AXP): Q1 Earnings Preview 2011

American Express Company (NYSE: AXP) is scheduled to release its first-quarter earnings after the closing bell on on Wednesday, April 20, 2011. Analysts, on average, expect the company to report earnings of 93 cents per share on revenue of $6.98 billion. In the year ago quarter, the company reported earnings of 73 cents per share on revenue of $6.61 billion.

American Express Company provides charge and credit payment card products, and travel-related services worldwide. Its principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses. It operates in two groups, the Global Consumer Group and the Global Business-to-Business Group. It issues both charge cards requiring a monthly payoff and credit cards on which customers can carry a balance.

American Express attracts more affluent card-holders on average than its peers due to its ability to cater to these customers better with benefits and rewards packages. Its other distinguishing factor is that it charges no fees on balances that are paid off within a certain grace period. As a result, American Express enjoys some of the lowest charge off rates in the industry.

In the preceding fourth quarter, the New York-based company's net income was $1.05 billion, or 88 cents a share, compared to $710 million, or 60 cents a share, in the prior-year quarter. On ana djusted basis, the company earned 94 cents a share. Revenue rose 13% to $7.32 from $6.49 billion. Analysts, on average, expected the company to report earnings of 94 cents per share on revenue of $7.29 billion. 

At its last earnings call in January, the company said that its strong billings and credit quality would provide it with the flexibility to continue with its investments in marketing and infrastructure. Last month, American Express said that it plans to repurchase shares this year  following approval by the Federal Reserve of its capital plan. 

American Express pulled itself out of the recession more quickly than its rivals, owing to its creditworthy customers. Moreover, less reliance on revolving credit and back-end fees has helped gain competitive advantage for the company while also improving its overall risk profile. Besides, there has been an impressive recovery in credit trends, with increased card spending over the last few quarters.

The company is now seeking to capture market share from PayPal, a unit of San Jose, California-based EBay Inc. (NASDAQ: EBAY) and larger rivals Visa (NYSE: V) and MasterCard (NYSE: MA), based in Purchase, New York.  American Express rcently unveiled Serve, a digital payment and commerce platform that gives consumers a new way to spend, send and receive money with services that go beyond the existing global payment networks. Also, it announced a strategic alliance wit Payfone to create and power a new global mobile checkout service. As part of the agreement, Payfone will combine its advanced mobile authorization and payment services with American Express' recently launched digital payments platform, Serve.

However, challenging regulatory economy and the impact of new regulations on the card industry still remain concerns. The new regulations under the CARD Act of 2009 are expected to make American Express’ credit cards costlier and will in turn result in lower interest income and loan fee income.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 11.51 and PEG ratio (5 yr expected) of 1.10. In terms of stock performance, AXP shares have gained nearly 9 percent since the beginning of the year.

Full Disclosure: None.
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