American Express Stock To Top The Revenues Estimates In Q2?
American Express (NYSE: AXP) is scheduled to report its fiscal Q2 2021 results on Friday, July 23. We expect American Express to top the consensus estimates for revenues, while the earnings are likely to remain below expectations. The company reported mixed results in the first quarter of 2021 as well, with its earnings beating the estimates and revenues falling short. The revenues suffered due to lower net interest income (NII) and a decline in non-interest revenues. On the flip side, its net income improved in Q1 due to a favorable reduction in provisions for credit losses. We expect the non-interest income to see some growth in the second quarter due to a recovery in the consumer spending levels. Additionally, provisions are expected to see a further decline in Q2.
Our forecast indicates that American Express’ valuation is around $152 per share, which is 10% below the current market price of around $169. Look at our interactive dashboard analysis on American Express’ pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to beat the consensus estimates in Q2
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Trefis estimates American Express’ fiscal Q2 2021 revenues to be around $9.73 billion, 2% above the $9.54 billion consensus estimate. Its top-line decreased by 17% y-o-y to $36.1 billion in 2020, mainly due to lower discount fees, the decline in card transaction volumes, and negative growth in outstanding loan balances. The firm is very sensitive to changes in consumer spending levels and interest rates, both of which suffered in 2020 due to the impact of the Covid-19 crisis. While consumer spending has a direct link with the transaction volumes and the loan balances, interest rates impact the NII. Hence, both the NII and non-interest income were down in the year. Further, the same trend continued in the first quarter of 2021, too. However, we expect the consumer spending levels to see some recovery in the second quarter, improving AXP’s non-interest income. That said, the NII is likely to post negative growth in Q2, as well.
Moving forward, we expect the travel bans and Covid-19 related restrictions to ease in several parts of the world due to accelerated vaccination programs. This will likely boost the transaction volumes and loan balances, as the company has co-branding card arrangements with several hotel chains and airlines. Further, the consumer spending levels are likely to see some recovery with improvement in the economic conditions. Overall, it will likely enable AXP’s revenues to touch $38.2 billion in FY2021. Our dashboard on American Express’ revenues offers more details on the company’s segments.
2) EPS is likely to miss the consensus estimates
American Express’ Q2 2021 adjusted earnings per share (EPS) is expected to be $1.43 per Trefis analysis, almost 10% below the consensus estimate of $1.58. The company reported weak profitability figures in 2020, partly due to lower revenues and partly due to higher provisions for credit losses. Further, its operating expenses as a % of revenues increased in the year due to higher compensation costs. That said, the company reported a massive jump in its adjusted net income in the first quarter of 2021 – from $333 million in the year-ago period to $2.2 billion. This was due to a favorable decrease in the provisions for credit losses and we expect the same trend to continue in the second quarter as well.
We expect the net income margin to improve in 2021, mainly driven by the reduction in provisions for credit losses with recovery in the economy. It will likely result in an adjusted net income of $5.7 billion – up by roughly 90% y-o-y. This is likely to enable AXP to report an EPS of around $7.26 in FY2021.
(3) Stock price estimate 10% lower than the current market price
Going by our American Express valuation, with an EPS estimate of around $7.26 and a P/E multiple of just below 21x in fiscal 2021, this translates into a price of $152, which is 10% below the current market price of around $169.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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