American Express Impresses with Q3 Earnings
In late October of 2014, American Express (AXP) traded at $86.40 per share and had a total market capitalization of approx. $90.42B. This is compared to its competitors including Visa (V) and MasterCard (MA) at approximately $133B and $85.69B respectively. While all three companies are in the same industry and arguably overlap in target customers, American Express has been known to target higher net worth individuals. Resulting in generating more revenues per customer than either.
What is one major difference between the three companies?
American Express typically offers more attractive rewards and benefits to its card members than V and MA. The reason they are able to do this is because their typical card member spends more than that of a Visa or MasterCard user.
Unlike that of Visa and Mastercard, American Express is that it is also in the banking industry. AXP has subsidiaries that are bank holding companies including Centurion Bank and AEBFSB. In addition to revenue from card services, AXP earns interest income on deposits at its banks. While both of which are subject to Dodd-Frank and FDIC regulations, both banks are well-capitalized.
In Q3 of 2014, American Express' EPS grew 12% year over year to $1.40 per share. Though revenues are consistent with that of the prior period, we need to back out the business travel operations revenue portion from the prior comparable period (Q3 2013) as that was deconsolidated in a joint venture (JV) transaction. The joint venture is with an unrelated third-party investor group who contributed $900 million to the JV for 50% ownership of the American Express Global Business Travel brand in June 2014. Excluding that revenue from a year ago, adjusted revenues increased 5% or 6% with foreign translation adjustments. Higher member spending and higher net interest income contributed to the increase in revenues.
American Express has reduced its company's expenses. Most notably, the decrease in 'Salaries and employee benefits accounted for 1,290M versus 1,544M in the Q3 2014 and Q3 2013, respectively. This is due primarily to the fact that the expenses from business travel is no longer consolidated in the income statement.
The company continues to repurchase common shares and as a result have reduced the shares outstanding from 1,071M shares in Q3'13 to 1,035M shares in Q3'14. This only makes the company's shares look more attractive. When there are less outstanding shares, this means the company's value is less diluted. In theory each share would be worth more than before given that the company's financials remain constant.
In 2008, American Express acquired 13.5% ownership stake in Concur Technologies (CNQR). Recently SAP SE (SAP) a enterprise software company proposed to acquire CNQR at $129 per share. The expectation is that this transaction will close in Q4 2014, however it could roll until Q1 2015. This would result in a sizable gain as 6.4M shares were originally purchased at $39.27 per share. In addition, AXP received warrants with the right to purchase an additional 1.28 million shares of Concur at 39.27 per share any time from 2008 to 2010. AXP did note that a portion of the shares were sold during Q3 2014.
Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.
From a technical perspective
, in the short-term there do not appear to be any glaringly obvious bullish patterns to trade. However, if we pan out and take a look at the weekly chart over two years, we can see that it just bounced off support at around 80. There is a nice hammer pattern with confirmation shown in October. This is a bullish sign when it tests prior resistance successfully as now it has become an important support level.
This resistance test coincided with the approximately 10% SPY market pull back, which swung from a market record high of 2019.26 to 1820.66. It has since rebounded to 1964.58 or a pull back just above the 61.8% Fibonacci extension
If I were planning on going long on AXP, from a technical perspective, now would be a decent opportunity to enter. The stock just convincingly bounced off support at around $80/share and has moved higher since.
Disclosure: I do not have a position in AXP.
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