AXP Earnings Look Key for American Express Stock

It seems overly anxious to argue that American Express (NYSE:AXP) stock needs big first-quarter results. After all, American Express stock is doing just fine, even if it’s been quiet.

American Express stock

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AXP stock did dip sharply in December, but it’s recovered those losses. Over the last year, American Express stock has gained nearly 17%, and it has more than doubled in the last three-plus years.

Still, AXP earnings, due to be reported on Thursday morning, do look reasonably important. The outlook of AXP stock still seems somewhat skeptical, if not outright bearish. Investors are worried about its growth and market share. Its Q4 earnings were disappointing, but the market quickly moved on and kept pushing American Express stock higher. Investors may not be so forgiving if AXP earnings are disappointing again on Thursday.

AXP stock has twice failed to break through resistance at about $113, and the average Street price target for American Express stock of $118 suggests an increase of  just 6% from its current level.

A “beat and raise” Q1 would likely cause analysts to raise their price targets on AXP stock, leaving AXP well-positioned to reach new highs. If AXP earnings miss expectations, however,  investors may have concerns  about AXP’s growth, causing American Express stock to at best trade sideways, as it has for nearly seven months now.

As a result, Thursday’s earnings do seem to be important for American Express stock,  and investors should review them closely.

Expectations for AXP Earnings

Wall Street is expecting a moderately slow start to the year for American Express. Analysts’ consensus revenue estimate projects just 7.6%  year-over-year, top-line growth, below the company’s full-year guidance of 8%-10%. The company’s margins are expected to be pretty much flat, and analysts on average expect its earnings per share to come in at $1.98, up 6.5% year-over-year.

That, too suggests improvement over the rest of the year. Consensus for 2019 as a whole is modestly above the midpoint of the company’s guidance, and projects 11% EPS growth.

That’s good news for AXP stock. AXP is not exactly in a “no-lose” situation, but analysts already expect its growth to accelerate as the year goes on. An in-line quarter, or even a modest miss, won’t necessarily endanger that outlook.

On the other hand, if AXP results solidly beat expectations, its outlook may get more interesting.  Under that scenario, American Express will have started the year strongly, and will still have the same room for improvement during the rest of the year. Full-year growth estimates may well get raised, and the earnings multiple assigned to American Express stock can also rise. If that occurs, AXP  can reach new highs.

AXP Stock and the Post-Earnings Call

That said, the numbers aren’t going to be the only aspect of the release to which investors will pay close attention. American Express re-upped its partnership with Delta Air Lines (NYSE:DAL) earlier this month. That was a big win for AmEx, which already had lost co-branding agreements with Costco Wholesale (NASDAQ:COST) and JetBlue Airways (NASDAQ:JBLU).

But American Express had to pay up for the win. It was Delta stock that soared on the news, given that its payments from the deal will double in five years. The end results of that negotiation certainly suggests that American Express’ edge over rivals Visa (NYSE:V) and Mastercard (NYSE:MA) has narrowed.

So investors will have concerns about AXP’s cost and market share  Visa and Mastercard simply are growing faster than AmEx. And the main concern about American Express – and the reason AXP stock is so much cheaper than V and MA – is that at some point, its earnings simply are going to stall out. The entrance of Apple (NASDAQ:AAPL) into the space only adds to those worries.

There likely will be some questions about the Delta deal  and the kind of returns American Express expects on the resulting $3 billion-plus increase in annual spending. Analysts will want management’s take on the Apple Card as well. AmEx needs to answer those questions well, and it needs to convince analysts and investors that its place in the credit-card industry is secure.

Be Careful With American Express Stock

All told, AXP’s Q1 results do seem  poised to change the outlook of AXP stock. A beat-and-raise quarter will suggest that AXP’s growth remains intact, making the 12.4  forward, price-earnings multiple of AXP stock seem awfully cheap. Any weakness – whether in the company’s results or its guidance – will cause investors to ask if fears about AXP’s growth are reasonable.

That doesn’t mean AXP stock is going to move 10% or more on Thursday; AXP simply isn’t that type of stock. Rather, AXP’s Q1 earnings could shape how American Express stock trades over the next two months  and determine whether AXP stock can finally break through resistance.

As of this writing, Vince Martin has no positions in any securities mentioned.

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