American Express Co. (AXP, Financial) reported solid third-quarter earnings, beating market expectations on the top and bottom lines.
The company also raised its full-year forecast and projects earnings per share to be in the $5.80 to $5.90 range. The better-than-expected earnings report coupled with the revised outlook is certainly bound to help the stock’s momentum.
The biggest challenge American Express faced going into third-quarter earnings was managing the rising expectations. With the stock up by more than 50% in the last 12 months and nearly 25% since the start of the year, any bad news or even a slight miss on revenue or EPS numbers would have had a huge impact on valuation in the short term.
Fortunately, the company delivered on both counts as it reported earnings per share of $1.50 on the back of $8.44 billion in revenues, while the market was expecting earnings per share of $1.48 on revenue of $8.285 billion. Third quarter revenue was up 9% from last year, while net income expanded 19%.
“We are completing a two-year turnaround ahead of plan with strong revenue and earnings growth across all of our business segments,” Chairman and CEO Kenneth Chenault said. “We’ve added products and benefits, shown continued strength in acquiring new customers, and expanded our merchant network.
The company also announced Chenault, who has been CEO for 17 years, will step down on Feb. 1. He will be succeeded by Stephen Squeri, who has been with American Express for more than three decades.
The global credit card market’s future has become increasingly questionable due to the growth of mobile payment service providers. American Express has been focusing on small businesses and increasing lending to consumers.
From being merely a premium credit card player, the company is now pushing hard toward small businesses to strengthen its position in the commercial payments space. During the third-quarter earnings call, incoming CEO Squeri made it amply clear the company will continue to focus on its strength, the premium consumer (credit card) space, while doubling down on its commercial payments segment.
It is still far too early to say the company’s long-term future is completely secure due to companies like PayPal Holdings Inc. (PYPL), which is growing stronger each year, and the rate at which mobile payment services like Apple Pay and AliPay are altering the terrain of the payments world.
The good news is American Express has realized there is a need to diversify its revenue streams and not remain dependent on only selling premium credit cards. The stock price has been going up and up as the company has beaten Wall Street's expectations for the last three consecutive quarters. But now that the stock price is up, American Express needs to keep delivering on revenue growth.
Disclosure: I have no positions in the stock mentioned above and have no intentions of initiating a position in the next 72 hours.
