Saturday, January 16, 2010

American Express Company (NYSE: AXP): Q4 Earnings Preview 2009

. Saturday, January 16, 2010

By Stock Wizard

American Express Company (NYSE: AXP) is scheduled to release its fourth quarter earnings for 2009 after the market close on Thursday, January 21, 2010. Analysts, on average, expect the company to report earnings of 54 cents per share on revenue of $6.12 million. In the year ago period, the company reported earnings of 21 cents per share on revenue of $6.51 billion.

American Express Company, a payments and travel company, provides charge and credit payment card products, and travel-related services worldwide. It operates in two groups, the Global Consumer Group and the Global Business-to-Business Group. It issues both charge cards requiring a monthly payoff and credit cards on which customers can carry a balance.

AmEx has been hit hard by as consumers slashed spending due to worst recession in decades. In October, the company reported a drop in third quarter profit impacted by lower consumer card spending and lower loan volumes, amid the global economic recession. Net income declined 21% to $640 million from $815 million in the same quarter a year ago. On a per share basis, net income was $0.53, down 24% from $0.70 in the prior-year quarter. Excluding the non-recurring $180 million or $113 million after tax associated with accounting for a net investment in consolidated foreign subsidiaries, adjusted earning from continuing operations was $0.44 per share. Total revenue net of interest expense fell 16%, to $6.02 billion from $7.16 billion a year ago. Analysts, on average, had expected the company to earn 40 cents a share.

However, the company noted that overall billings have stabilized during the last few months, with indications of spending by corporate card-members beginning to pick up. Also, the credit card lender said in November that its customers spent more in absolute-dollar terms in October and reported billing was up 3% during the same period. Meanwhile, there are indications that the pace of decline in the amount AmEx cardholders spend is slowing, and the volume of souring card loans, although at still historically high levels, has fallen from the peaks reached in the beginning of 2009. The rate for loans at least 30 days delinquent, an indicator of future loan losses, was 3.7 percent at the end of December, down from 3.9 percent a month earlier- the second consecutive monthly decline. AmEx was the only one of the “Big 6” credit-card issuers to post November declines in write-offs and delinquencies. The company has registered the fastest recovery in the credit card industry and has cut its charge-off rate by more than one-fourth to 7.4 percent since May. Managed annual net write-off rate fell to 7.4 percent at the end of December from 8.1 percent at the end of November, the New York-based lender said on Friday in a regulatory filing.

In fact, it has emerged even stronger from the financial crisis, given its reliance on corporate and affluent customers. It is the only major credit card lender that did not cut its dividend and remained profitable during the financial meltdown. Thanks to lower defaults and an improvement in spending, the company is likely to see sequential improvement in loan loss provision during the fourth quarter.

Among other development, AmEx agreed to acquire Revolution Money, an alternative payments company, in November for $300 million. The credit card lender is believed to be primarily interested in the growing market for online and alternative payments the so-called peer-to-peer services of Revolution, which enable low-cost money transfers among individuals and businesses. It is also testing a charge card with lower fees for young customers in order to attract new clients.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 17.64 and PEG ratio (5 yr expected) of 2.60. In terms of stock performance, AmEx shares have gained nearly 137% over the past year. For the year 2009, American Express was the Dow's best-performing component.

Full Disclosure: None.

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