American Express (AXP) earnings release for the 2nd quarter of their 2021 fiscal year
Category: American Express (AXP)
Date: 24 July 2021 Stock Price of American Express (AXP): $173.18 Market Capital of American Express (AXP): $139.1 billion We take a look at the 2nd quarter earnings report of their 2021 fiscal year of American Express, a leading global payments company that provides personal and business credit and travel cards. Revenues for the quarter came in at $10.24 billion and net income of $2.3 billion
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- Our strong second quarter results show that the steps we have taken to manage the company through the pandemic and our strategy of investing to rebuild our growth momentum are paying off - Stephen J. Squeri, Chairman and Chief Executive Officer."
About American Express
American Express (NYSE: AXP) is a globally integrated payments company that provides customers with access to products, insights and experiences that enrich lives and build business success. Our integrated payments platform includes card-issuing, merchant-acquiring and card network businesses. We are a leader in providing payment products and services to a broad range of customers, including consumers, small businesses, mid-sized companies and large corporations around the world.
Founded in 1850 and headquartered in New York, American Express has a heritage built on service and sustained by innovation. American Express® cards issued by American Express as well as by third-party banks and other institutions on the American Express network are accepted at millions of merchants around the world.
Founded in 1850 and headquartered in New York, American Express has a heritage built on service and sustained by innovation. American Express® cards issued by American Express as well as by third-party banks and other institutions on the American Express network are accepted at millions of merchants around the world.
Overview of American Express' 2nd quarter 2021 earnings report
- First-quarter consolidated total revenues net of interest expense were $9.1 billion, down 12 percent from $10.3 billion a year ago. The quarter primarily reflected declines in Card Member spending and loan volumes, as well as a lower average discount rate compared to the prior year.
- Consolidated provisions for credit losses resulted in a benefit of $675 million, primarily reflecting the previously mentioned reserve releases and lower net write-offs, compared with a provision expense of $2.6 billion a year ago, which primarily reflected significant credit reserve builds.
- Consolidated expenses were $6.7 billion, down 7 percent from $7.2 billion a year ago, reflecting lower customer engagement costs and operating expenses. Customer engagement costs were down due to the decline in Card Member spending and lower usage of travel-related Card Member benefits, partially offset by marketing investments the company made to rebuild growth momentum. The decrease in operating expenses was primarily driven by gains related to certain Amex Ventures equity investments, partially offset by higher deferred and other compensation costs.
- The consolidated effective tax rate was 25.3 percent, up from 18.8 percent a year ago. The increase primarily reflected the impact of certain discrete tax benefits in relation to lower pretax income in the prior year.
American Express' management commentary on their 1st quarter 2021 earnings report
NEW YORK--(BUSINESS WIRE)-- American Express Company (NYSE: AXP) today reported second-quarter net income of $2.3 billion, or $2.80 per share, compared with net income of $257 million, or $0.29 per share, a year ago. The results reflected the impact of $866 million ($658 million after tax) in credit reserve releases2, primarily driven by the company’s strong credit performance and continued improvements in the macroeconomic outlook.
- Second-quarter consolidated total revenues net of interest expense were $10.2 billion, up 33 percent from $7.7 billion a year ago. The quarter primarily reflected growth in Card Member spending, as well as a rise in the average discount rate from increased levels of travel and entertainment spending in the U.S., compared to the prior year.
- Consolidated provisions for credit losses resulted in a benefit of $606 million, primarily reflecting the previously mentioned reserve releases and lower net write-offs, compared with a provision expense of $1.6 billion a year ago, which primarily reflected significant credit reserve builds.
- Consolidated expenses were $7.9 billion, up 44 percent from $5.5 billion a year ago, reflecting higher customer engagement costs.4 Customer engagement costs were up due to an increase in Card Member spending, higher marketing investments to rebuild growth momentum, and higher usage of travel-related Card Member benefits. Operating expenses were slightly down as a result of gains related to certain Amex Ventures equity investments.5
- The consolidated effective tax rate was 22.4 percent, down from 58.7 percent a year ago. The decrease primarily reflected the impact of discrete tax charges and lower pretax income in the prior year.
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“Our strong second quarter results show that the steps we have taken to manage the company through the pandemic and our strategy of investing to rebuild our growth momentum are paying off,” said Stephen J. Squeri, Chairman and Chief Executive Officer.
“Demand for our premium, fee-based products continued to be robust, with acquisitions of U.S. Platinum Card Members reaching record levels this quarter. We acquired 2.4 million new proprietary cards in the quarter, while continuing to retain Card Members at rates above pre-pandemic levels.
“We saw Card Member spending accelerate from the prior quarter and exceed pre-pandemic levels in June, with the largest portion of this spending growth coming from Millennial, Gen Z, and small business customers. Global goods and services spending volumes strengthened even further, growing 16 percent on an FX-adjusted basis3 over Q2 2019, even as travel and entertainment spending continued to improve.
“One of our competitive strengths has been to regularly refresh our products with differentiated offerings, leveraging our digital ecosystem and our diverse network of partners. The launch of our U.S. Consumer Platinum Card, with enhanced lifestyle and travel benefits in July, marked the restart of this strategy. Going forward, we will continue to invest to drive innovation for our customers by refreshing other consumer and commercial products and rolling out new digital capabilities.
“As we look ahead, we are increasingly optimistic that the momentum we’ve generated will continue given the strength we see in our core business, particularly in the U.S., even as the pace of the recovery remains uneven in different regions around the world. Based on current trends, we are confident in our ability to be within the high end of the range of EPS expectations we had for 2020 in 2022.”
“Demand for our premium, fee-based products continued to be robust, with acquisitions of U.S. Platinum Card Members reaching record levels this quarter. We acquired 2.4 million new proprietary cards in the quarter, while continuing to retain Card Members at rates above pre-pandemic levels.
“We saw Card Member spending accelerate from the prior quarter and exceed pre-pandemic levels in June, with the largest portion of this spending growth coming from Millennial, Gen Z, and small business customers. Global goods and services spending volumes strengthened even further, growing 16 percent on an FX-adjusted basis3 over Q2 2019, even as travel and entertainment spending continued to improve.
“One of our competitive strengths has been to regularly refresh our products with differentiated offerings, leveraging our digital ecosystem and our diverse network of partners. The launch of our U.S. Consumer Platinum Card, with enhanced lifestyle and travel benefits in July, marked the restart of this strategy. Going forward, we will continue to invest to drive innovation for our customers by refreshing other consumer and commercial products and rolling out new digital capabilities.
“As we look ahead, we are increasingly optimistic that the momentum we’ve generated will continue given the strength we see in our core business, particularly in the U.S., even as the pace of the recovery remains uneven in different regions around the world. Based on current trends, we are confident in our ability to be within the high end of the range of EPS expectations we had for 2020 in 2022.”
American Express (AXP) stock price chart over the last 5 years
The image below shows the stock price history of American Express over the last 5 years. And it's been a pretty good time for American Express stockholders. Over the last 5 years the stock of American Express (AXP) has increased by 163.9%. No investor would say no to those type of returns.
The stock of American Express is trading at closer to its 52 week high than it is toits 52 week low which is a clear indication that the short term sentiment and momentum of American Express stock is positive at this point in time.
The stock of American Express is trading at closer to its 52 week high than it is toits 52 week low which is a clear indication that the short term sentiment and momentum of American Express stock is positive at this point in time.
American Express (AXP) latest stock valuation
So what is American Express stock worth based on the release of their latest earnings report? Based on American Express' latest earnings report our valuation models provide a target price (full value) price of American Express stock at $186.70 a stock. Therefore we believe the stock of American Express is slightly undervalued at its current price of $173.20
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target price (full value price) which in this case is $173.20, so a good entry point into American Express' stock would be at $168 or below.
We expect the stock of American Express to trade in a narrow range around its current price in coming weeks and months as it is close to our target price (full value price). Since the stock of American Express is trading at close to our suggested entry price we rate the stock of American Express a hold
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target price (full value price) which in this case is $173.20, so a good entry point into American Express' stock would be at $168 or below.
We expect the stock of American Express to trade in a narrow range around its current price in coming weeks and months as it is close to our target price (full value price). Since the stock of American Express is trading at close to our suggested entry price we rate the stock of American Express a hold
Next earnings release date for American Express
It is expected that American Express will release their 3rd quarter 2021 earnings report will be released in late October 2021