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AmEx's Q3 Earnings Shine: Is it Time to Buy or Keep Your Cool?
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American Express Company (AXP - Free Report) recently reported strong third-quarter 2024 earnings, driven by increased card member spending, fee growth, rising net interest income, and a growing Gen-Z and Millennial customer base. Moreover, AmEx increased its 2024 earnings guidance, reflecting resiliency in its core business prospects despite a softer spending growth environment.
The strong results reflect AXP’s robust business model and the strength of its premium customer base. With solid growth across key financial metrics and increasing demand for its products, the question remains: Should you buy Amex stock?
To answer this question, let's dive into its third-quarter results and AXP’s growth drivers.
AmEx’s Q3 Earnings & Robust Outlook
American Express reported third-quarter 2024 earnings per share (EPS) of $3.49, which beat the Zacks Consensus Estimate by 6.7%. The bottom line increased 6% year over year. The company achieved its 10th consecutive quarter of record revenues, reaching $16.6 billion. This represents an 8.2% increase year over year. However, the metric marginally missed the Zacks Consensus Estimate.
AXP increased its full-year 2024 earnings guidance between $13.75 and $14.05 per share, reflecting a 24% increase year over year. The expected earnings growth comes in higher than the company’s long-term guidance of mid-teens. Revenue growth is expected to be 9% year over year for 2024.
So far this year, AmEx has reported better-than-expected results in all three quarters. Investors have already responded positively, with AXP rallying 42.7%, outperforming the industry’s growth of 8.1%. It also outperformed Euronet Worldwide, Inc. (EEFT - Free Report) , Mastercard Incorporated (MA - Free Report) and Visa Inc. (V - Free Report) . EEFT lost 1%, while MA and V gained 19% and 8.2%, respectively, in the same time frame.
AXP’s One-Year Price Performance
Image Source: Zacks Investment Research
AmEx’s Product Refresh Strategy & Solid Retention
American Express’s product refreshes are a major growth driver, appealing to both current and potential premium cardholders. The company targets higher acquisition and retention rates by enhancing benefits and services and increasing annual fees.
AXP completed 40 products globally in 2024, with several more incoming by 2024-end. The enhanced value provided will contribute to strong customer engagement and fee-based revenue growth. This approach recently saw success with the U.S. Consumer Gold Card refresh, which resulted in high new account sign-ups and strong retention.
AXP continues to experience robust loyalty from its younger generation cohort compared to older generations. Hence, its focus on continually enhancing products for this target customer segment should prove to be a good move.
The product refresh strategy benefited American Express, which marked 25 consecutive quarters of double-digit growth in net card fees, including an 18% increase in the third quarter of 2024. AXP is optimistic that this refresh approach will continue to attract new premium customers, increase engagement with existing ones and support their broader growth objectives.
Enhanced Focus on Dining
American Express views the dining sector as a significant growth opportunity, as evidenced by its strategic investments and the integration of dining benefits into its premium products. The company's acquisitions of Resy, Tock, and Rome demonstrate its commitment to building a robust dining platform, offering card members access to restaurant reservations, unique culinary experiences, and sophisticated event management tools.
By incorporating these benefits into its premium cards, AXP aims to attract new customers while also deepening engagement and spending among its existing card member base. The company is focusing on Millennials and Gen-Z consumers, who exhibit strong dining preferences and represent a valuable growth segment. American Express aims to capitalize on the $1 trillion U.S. restaurant market in the future.
Long-Term Growth Prospects
American Express leverages a loyal customer base and new card acquisitions, amongst others, to drive revenue growth. Targeting Millennials and Gen Z, the company focuses on expanding billed business with enhanced rewards and engagement while focusing on credit quality in younger demographics. The company’s 30+ days past due loans reported a marginal increase year over year in the third quarter of 2024, reflecting strength in its loan portfolio.
Increased marketing expenses entirely funded through organic means bode well. This investment is expected to boost customer acquisition. Strategic partnerships further enhance its premium appeal, strengthening engagement and market reach.
Estimate Revision Favoring AmEx Stock
Analysts seem to be bullish about AmEx’s prospects. Its 2024 & 2025 earnings have witnessed upward estimate revisions. The Zacks Consensus Estimate for 2025 earnings indicates a further 12.6% year-over-year increase. The consensus estimate for next year’s revenues is pegged at $71.6 billion.
Image Source: Zacks Investment Research
AmEx’s Valuation
Now, let’s look at the value American Express offers investors at current levels.
The company’s valuation looks a bit stretched compared with the industry average. Currently, AXP is trading at 18.13X forward 12 months earnings, above the industry’s average of 14.91X, indicating investor confidence in the company’s prospects.
Image Source: Zacks Investment Research
Conclusion
AXP’s ongoing refresh strategy, improved earnings outlook, focus on the Millennial and GenZ customer base and solid portfolio loan book position it well for sustained growth. Growth in its top line coupled with stable spending levels, despite the economic backdrop of a softer spending environment, is commendable. Its strong price performance in the past year highlights investors’ confidence in AXP’s long-term prospects. Given the positive indicators, American Express stock presents a compelling buy opportunity for investors now.
Image: Bigstock
AmEx's Q3 Earnings Shine: Is it Time to Buy or Keep Your Cool?
American Express Company (AXP - Free Report) recently reported strong third-quarter 2024 earnings, driven by increased card member spending, fee growth, rising net interest income, and a growing Gen-Z and Millennial customer base. Moreover, AmEx increased its 2024 earnings guidance, reflecting resiliency in its core business prospects despite a softer spending growth environment.
The strong results reflect AXP’s robust business model and the strength of its premium customer base. With solid growth across key financial metrics and increasing demand for its products, the question remains: Should you buy Amex stock?
To answer this question, let's dive into its third-quarter results and AXP’s growth drivers.
AmEx’s Q3 Earnings & Robust Outlook
American Express reported third-quarter 2024 earnings per share (EPS) of $3.49, which beat the Zacks Consensus Estimate by 6.7%. The bottom line increased 6% year over year. The company achieved its 10th consecutive quarter of record revenues, reaching $16.6 billion. This represents an 8.2% increase year over year. However, the metric marginally missed the Zacks Consensus Estimate.
AXP increased its full-year 2024 earnings guidance between $13.75 and $14.05 per share, reflecting a 24% increase year over year. The expected earnings growth comes in higher than the company’s long-term guidance of mid-teens. Revenue growth is expected to be 9% year over year for 2024.
These results underscore a robust performance across most of the segments. For a detailed analysis, please read our blog on third-quarter earnings: AmEx Q3 Earnings Beat Estimates on Consumer Spending Growth.
So far this year, AmEx has reported better-than-expected results in all three quarters. Investors have already responded positively, with AXP rallying 42.7%, outperforming the industry’s growth of 8.1%. It also outperformed Euronet Worldwide, Inc. (EEFT - Free Report) , Mastercard Incorporated (MA - Free Report) and Visa Inc. (V - Free Report) . EEFT lost 1%, while MA and V gained 19% and 8.2%, respectively, in the same time frame.
AXP’s One-Year Price Performance
Image Source: Zacks Investment Research
AmEx’s Product Refresh Strategy & Solid Retention
American Express’s product refreshes are a major growth driver, appealing to both current and potential premium cardholders. The company targets higher acquisition and retention rates by enhancing benefits and services and increasing annual fees.
AXP completed 40 products globally in 2024, with several more incoming by 2024-end. The enhanced value provided will contribute to strong customer engagement and fee-based revenue growth. This approach recently saw success with the U.S. Consumer Gold Card refresh, which resulted in high new account sign-ups and strong retention.
AXP continues to experience robust loyalty from its younger generation cohort compared to older generations. Hence, its focus on continually enhancing products for this target customer segment should prove to be a good move.
The product refresh strategy benefited American Express, which marked 25 consecutive quarters of double-digit growth in net card fees, including an 18% increase in the third quarter of 2024. AXP is optimistic that this refresh approach will continue to attract new premium customers, increase engagement with existing ones and support their broader growth objectives.
Enhanced Focus on Dining
American Express views the dining sector as a significant growth opportunity, as evidenced by its strategic investments and the integration of dining benefits into its premium products. The company's acquisitions of Resy, Tock, and Rome demonstrate its commitment to building a robust dining platform, offering card members access to restaurant reservations, unique culinary experiences, and sophisticated event management tools.
By incorporating these benefits into its premium cards, AXP aims to attract new customers while also deepening engagement and spending among its existing card member base. The company is focusing on Millennials and Gen-Z consumers, who exhibit strong dining preferences and represent a valuable growth segment. American Express aims to capitalize on the $1 trillion U.S. restaurant market in the future.
Long-Term Growth Prospects
American Express leverages a loyal customer base and new card acquisitions, amongst others, to drive revenue growth. Targeting Millennials and Gen Z, the company focuses on expanding billed business with enhanced rewards and engagement while focusing on credit quality in younger demographics. The company’s 30+ days past due loans reported a marginal increase year over year in the third quarter of 2024, reflecting strength in its loan portfolio.
Increased marketing expenses entirely funded through organic means bode well. This investment is expected to boost customer acquisition. Strategic partnerships further enhance its premium appeal, strengthening engagement and market reach.
Estimate Revision Favoring AmEx Stock
Analysts seem to be bullish about AmEx’s prospects. Its 2024 & 2025 earnings have witnessed upward estimate revisions. The Zacks Consensus Estimate for 2025 earnings indicates a further 12.6% year-over-year increase. The consensus estimate for next year’s revenues is pegged at $71.6 billion.
Image Source: Zacks Investment Research
AmEx’s Valuation
Now, let’s look at the value American Express offers investors at current levels.
The company’s valuation looks a bit stretched compared with the industry average. Currently, AXP is trading at 18.13X forward 12 months earnings, above the industry’s average of 14.91X, indicating investor confidence in the company’s prospects.
Image Source: Zacks Investment Research
Conclusion
AXP’s ongoing refresh strategy, improved earnings outlook, focus on the Millennial and GenZ customer base and solid portfolio loan book position it well for sustained growth. Growth in its top line coupled with stable spending levels, despite the economic backdrop of a softer spending environment, is commendable. Its strong price performance in the past year highlights investors’ confidence in AXP’s long-term prospects. Given the positive indicators, American Express stock presents a compelling buy opportunity for investors now.
The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.