American Express Co. (AXP, Financial) vied for the coveted spot of hot stock of the day.
In Thursday afternoon trading, shares soared over 7% in excess of $102 a share, hitting a 52-week high as the markets demonstrated confidence in the charge card provider’s ability to make money. The stock's 52-week range is $75.51 to $102.39 a share.
Just a day ago, the largest handler of traveler’s checks in the world beat top-line estimates in the first quarter by 15 cents a share.
American Express reported diluted earnings of $1.86 per share on revenues of $9.7 billion. That compared to earnings per share of $1.35 on $8.7 billion in revenue a year ago.
Net income also rose to $1.6 billion from $1.25 billion a year prior. It was encouraging news for investors who saw the company lodge a profit loss of $1.2 billion in prior-quarter. (In the fourth quarter, the company posted a loss in earnings per share of $1.42.)
In a Wednesday evening earnings call, company leaders reminded investors first-quarter earnings reflected the benefit of a lower effective tax rate under the U.S. Tax Cuts and Jobs Act. Under the law, U.S. corporations paid a lower effective tax rate, which cut their obligations by roughly 9 percentage points.
But, even without the tax break, American Express said it would have produced double-digit gains. Officials described it as a “solid start to the year.”
The company also said it was aided as a result of a 5% reduction in shares outstanding, which were part of share repurchases over the last four quarters. Estimates have shown that the share buybacks have improved annual earnings per share growth by about 500 basis points.
Some analysts have indicated they would lower their earnings per share estimates for the next two years. The analysts say they believe the company is likely to suspend its buyback program. Even so, American Express issued a rosy forward guidance this week. Its estimates show annual earnings in the range of $6.90 to $7.30 per share for 2018.
During Wednesday's earnings call, officlals also announced that American Express likely would continue the share buyback program in the second half of 2018.
Competition on benefits and value products
GuruFocus data shows the company is cash-rich, though net income has dropped over the past year. While net income fell to $2.7 billion in December from over $5 billion a year ago, the company has amassed the largest free cash flow in over a decade to $12.47 billion as of December 2017.
In long-term debt and capital lease obligations, it posted $55.8 billion in December 2017, compared $21 billion in 2003.
But what seemed important to investors was the company's ability to draw upon consumer confidence in the economy in the first quarter. Card members spent more and borrowed more, company officials said.
American Express saw its loan portfolio grow by 16%. In card member spending, it saw a 12% increase.
It also drew an additional 3.5 million new card memberships across its global-issuing business.
Its U.S. consumer services sector reported first-quarter net income of $640 million, compared to $494 million a year ago.
In international consumer and network services, it reported net income of $291 million, compared to $252 million a year ago.
In global commercial services, it reported net income of $552 million, up from $409 million a year ago.
In global merchant services, it reported net income of $472 million, an increase from $357 million a year ago.
In corporate and other, it reported a net loss of $321 million compared to a net loss of $261 million a year ago. Officials said it involved a transaction involving the company's prepaid operations.
This year, the company partnered with Hilton Honors in order to offer more benefits and better value discounts for business and pleasure travelers. The Hilton Honors American Express Aspire Card provides first-class dining and access to a concert series that has included bands like Charlie Puth, The Chainsmokers, Nick Jonas, Jason Derulo and other headliners.
Some investors have looked to American Express’ lending business to drive future growth as competitors like JPMorgan Chase & Co. (JPM, Financial) and Citibank (C, Financial) vie for the same customers.
Fundamentals
American Express has a market cap of $87.3 billion. Its price-book ratio is 4.78 versus an industry median of 1.19. Its price-sales ratio is 2.70 versus an industry median of 3.46.
Earnings before interest, taxes, depreciation and amortization stood at $9.86 a share and has steadily been growing from $3.79 a share in 2004.
Its return on equity took a dive last year to 13.60% from the prior year’s 25.67%. The financial indicator rose to 37% prior to the economic recession in 2008. It has seen net interest margins rise, however. In December 2017, it saw 8.67% compared to 7.78% in the year prior.
It has seen employee ranks fall to 55,000 late last year from 78,200 in 2003.
