American Express (NYSE:AXP) reported a significant 34% year-on-year (YoY) surge in Q3 earnings to $3.30 per share on Friday, outperforming the analysts' projection of $2.95 per share. The company's revenues also climbed by 13% YoY to reach $15.4 billion, aligning with market predictions. This aligns with InvestingPro's data, showing a revenue growth of 10.52% for the last twelve months (LTM2023.Q2).
The firm attributed much of its success to an increase in card member spending and travel and entertainment expenses, which grew by 7% and 13% respectively on an FX-adjusted basis. Interestingly, CEO Stephen J.Squeri highlighted an 18% increase in spending by U.S.-based millennial and Gen Z customers, who now represent over 60% of global consumer account acquisitions. InvestingPro Tips highlight American Express as a prominent player in the Consumer Finance industry, which is reflected in the company's high earnings quality, with free cash flow exceeding net income.
Earlier on Friday, prior to the announcement of the Q3 results, Oppenheimer's Dominick Gabriele had predicted a mixed quarter for credit card issuers but favored AXP due to potential better-than-expected preprovision expenses for Q3 2023. The consolidated expenses were projected at $11.3 billion by Visible Alpha consensus, up from $11.1 billion in Q2 and $10.3 billion in Q3 2022.
The company's network volume was expected to rise marginally to $427.2 billion from Q2's $426.6 billion. Credit quality remained stable in Q3 with loans to U.S consumers and small businesses increasing to $102.9 billion and a slight rise in the U.S consumer delinquency rate to 1.3%, still below the prepandemic rate of 1.5%. The net charge-off rate decreased to 1.7% from June's 1.8%, lower than the 2.0% rate four years ago. InvestingPro Tips note that American Express has maintained dividend payments for 53 consecutive years, which is supported by the company's strong earnings.
In light of these results, analysts have rated AXP stock as a Moderate Buy, with a projected average price target of $178.67, indicating a potential upside of 19.4%. This is slightly lower than the InvestingPro Fair Value of $152.3 USD. However, it's important to note that the company's stock price has fallen significantly over the last three months, according to InvestingPro data. For more insights like these, consider subscribing to InvestingPro, which offers an additional 13 valuable tips for AXP. Click here to learn more.
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