American Express (NYSE:AXP) (AMEX) reported a record revenue of $15.4 billion on October 20, marking a 13% year-on-year increase, according to Morningstar Direct. This surge was driven by strong consumer spending and a significant 34% annual rise in net interest income to $3.4 billion. Despite these positive results, the company's shares fell nearly 5% following the announcement, contributing to a 4.3% year-to-date decline.
The credit card giant's commercial spending only saw a marginal growth of 1%, despite a 5.4% increase in outstanding commercial cards and a 4.7% decline in average spending per card. This sector contributes about 30% to AMEX's total volume.
Investors' concerns were stirred by AMEX's decision to increase potential credit loss provisions by 58% to $1.23 billion, bringing year-to-date provisions to $3.49 billion. This move indicates concerns about customer resilience amidst a slowing economy and the need for belt-tightening.
Despite recovering from the pandemic with travel spending surpassing 2019 levels, high inflation and economic pressure are expected to impact consumer travel demand. Danni Hewson at AJ Bell highlighted investor caution over future slowed corporate spending due to higher costs, sluggish growth, and continued video conferencing.
Over 80% of AMEX's revenue comes from non-interest sources like merchant processing fees. Although CEO Stephen Squeri expects slower revenue growth next year, Hewson views the forecast as solid due to AMEX's affluent client base and robust US jobs market.
With interest rates likely to remain high for longer, AMEX is expected to continue benefiting from higher net interest income. Keith Bowman at Interactive Investor noted that while AMEX's record earnings and cost management are positive, investors should consider the uncertain economic landscape. The estimated future price-earnings (PE) ratio is below three-and ten-year averages, suggesting shares are not obviously expensive.
InvestingPro Insights
With real-time data from InvestingPro, a more comprehensive view of American Express (AMEX) is available. The company's adjusted market cap stands at 104.63B USD, with a P/E ratio of 13.47 as of Q3 2023. The revenue for the same period was 54.38B USD, indicating a growth of 9.58%.
In line with the InvestingPro Tips, AMEX has demonstrated high earnings quality, with free cash flow exceeding net income, and has managed to maintain dividend payments for 53 consecutive years. This is supported by the data showing a 1.7% dividend yield as of 2023. Furthermore, the company is a prominent player in the Consumer Finance industry, offering high returns on invested capital.
For more in-depth analysis and additional tips, consider the InvestingPro product which includes 10 more relevant insights about AMEX.
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