American Express Posts 39% Earnings Increase: So Why Is Stock Down?

(MENAFN- ValueWalk) The payment processor had record revenue and raised its earnings guidance for the full fiscal year.

American Express (NYSE:AXP), by most measures, had an excellent second quarter, yet its stock price was down more than 4% on Friday to below $240 per share.

Revenue hit a record high of $16.3 billion in the second quarter , some 9% higher than the same quarter a year ago, while net income soared 39% to $3.0 billion, or $4.15 per share.

The third largest payment processor also raised its full year earnings per share outlook. So why was American Express stock down more than 4% on the day?

Analysts had projected higher revenue for American Express, about $16.6 billion, so it was viewed as a revenue miss. Should investors be concerned or view this as a buying opportunity?

American Express' record revenue was driven by interest income, which spiked 21% to $5.8 billion. Unlike Visa and Mastercard, American Express is also a lender, so it earns interest income, in addition to swipe fees.

Its non-interest income, derived primarily from swipe and annual fees, was $12.6 billion, up 5% year-over-year.

American Express card members spent $441 billion in the quarter, up 3% year-over-year, while card member loans rose 14% to $131 billion. American Express cards-in-force, meaning cards in circulation, rose 5% in the quarter, year-over-year, while new cards issued jumped 10% to 3.3 million. In addition, the average fee per card increased 11% to $101.

This all contributed to a 39% increase in net income and a 44% rise in earnings per share. It should be noted, however, that EPS was boosted by the sale of Accertify, which closed in the second quarter. Adjusted EPS, excluding the transaction, was $3.49 - still a 21% year-over-year increase.

“Since the end of 2021, we have significantly grown the scale of our business, increasing revenues by nearly 50% and card member spending by almost 40%, while adding around 23 million new cards and over 30 million merchant locations,” Stephen Squeri, chairman and CEO, said.“This increased scale, combined with our premium, high credit quality customers, our well-controlled expense base and our successful investments to continuously enhance our membership model, fuels the earnings power of the core business and reinforces our confidence in our ability to deliver strong bottom-line growth.”

That momentum is expected to continue as American Express raised its earnings guidance to $13.30 to $13.80 per share, from the previous estimate of $12.65 to $13.15. That would be an 18% to 23% gain over 2023. Also, revenue is anticipated to grow 9% to 11% for the year, in line with previous guidance.

American Express also improved its cash position by 23% to $53 billion, which will allow the company to boost its marketing spending by 15% over last year.

American Express stock did not get any price target upgrades after it released Q2 earnings on Friday morning and the consensus 12-month price target is $253, which would be just 5% higher than it is now. It is up 29% YTD.

I think today's selloff creates a buying opportunity for investors, as American Express is a great company and the decline on Friday makes it a little cheaper. It currently has a P/E ratio of 20.

It is one of just four major credit card/payment processors, so it enjoys a nice moat around its business. But it is also unique within the space because it caters to a wealthier clientele, making it less prone to shifts in consumer spending.

American Express stock is one of the largest, and longest held, positions in Warren Buffett's Berkshire Hathaway portfolio for a reason. It is a stock to consider for investors looking for a solid, reliable, long-term option.

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