Will American Express Miss Revenue Expectations For FY 2019?

by Trefis Team
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American Express Company
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American Express (NYSE: AXP) will release its Q4 and full-year 2019 results on Friday, January 24. Trefis details expectations from the credit card giant in an interactive dashboard, parts of which we highlight below. We believe that American Express’ FY 2019 results will likely miss consensus estimates for revenues and earnings. The revenues are expected to increase to $43.2 billion primarily due to growth in fees income from consumer and commercial cards. However, it would miss the consensus estimate of $43.6 billion. Similarly, the EPS figure would improve to $8.10 due to a combination of higher revenues and a steady decrease in shares outstanding, although it would still be lower than the consensus earnings estimate of $8.16. Further, we believe that weaker-than-expected earnings and revenues for FY 2019 will likely result in a slight downfall in the American Express’ stock price once earnings are announced. Our forecast indicates that American Express’ valuation is $124 a share, which is roughly 5% below its current price.

Trefis shines the spotlight on key assumptions and data for American Express, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for American Express’ FY19 earnings in our interactive dashboard.

 

(1) American Express’ revenue would have increased by 7.1% from $40.3 billion in 2018 to $43.2 billion in 2019; slightly below consensus estimates

  • Trefis estimates American Express’ 2019 revenues to be $43.2 billion, slightly below the consensus estimate of $43.6 billion.
  • Although American Express’ Total Revenues have grown at an average annual growth rate of 12% from $32 billion in 2016 to $40 billion in 2018, we expect the growth rate to slow down over 2019-2020.
  • The revenues would have crossed $43.2 billion in 2019 – an addition of $2.9 billion, mainly driven by growth in Global Consumer and Global Commercial Services.
  • Fees on consumer cards contribute around 68% of Global Consumer Services revenues, which would have been the main driver of the segment revenues in 2019.
  • Similarly, Global Commercial Services drives around 94% of its revenues from fees on commercial cards, which would have added $600 million in incremental revenues in 2019.
  • Notably, we expect American Express to add about $2.4 billion in incremental revenues by 2020, enabling the revenue figure to cross $45.6 billion.

Our interactive dashboard analysis, ‘American Express Revenue – How Does American Express Make Money?’, provides an interactive, in-depth view of the company’s revenues along with our forecasts and a comparison of trends with peers Discover Financial, Mastercard, and Visa.

 

(2) EPS is expected to increase by 2.7% from $7.90 in 2018 to $8.10 in 2019, although it would still miss the consensus estimates

  • We expect American Express’ 2019 earnings per share (EPS) to be $8.10 per Trefis analysis, marginally lower than the consensus estimate of $8.16 per share.
  • An increase in Revenues as detailed above, coupled with a steady reduction in Shares Outstanding, will drive EPS growth despite an expected increase in Total Expenses by 9.2%.
  • As we forecast American Express’ Revenues to grow at a slower rate than Expenses in 2019 (7.1% vs. 9.2%), this will result in a slight reduction in AXP’s Net Income Margin figure from 16.8% in 2018 to 15.2% in 2019.
  • For 2020, we believe that revenue and expenses would grow at a similar rate, enabling the net income margin figure to hover around the 2019 figure of 15.2%.

 

(3) Stock price estimate ~5% lower than the market price

  • A trailing P/E multiple of 15.3x looks appropriate for American Express’ stock, as opposed to the current implied P/E multiple of 16.1x
  • Trefis’ forecast for American Express’ 2019 earnings, as well as P/E multiple, are slightly lower than the market estimates. This works out to a fair value of $124 for American Express’ stock as opposed to the current market price around $132.

 

See all Trefis Price Estimates and Download Trefis Data here

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