American Express' Mixed Q3 Results: Goldman Analyst Sees Silver Lining In Expense Management And NII Growth

American Express Co AXP stock slid Friday after its third-quarter print failed to impress the Street.

The third-quarter revenue (net of interest expense) grew 8% year-on-year to $16.64 billion, marginally missing the analyst consensus estimate of $16.67 billion. Higher loan volumes, stable growth in Card Member spending, and accelerated card fee revenue growth triggered the topline growth.

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Goldman Sachs analyst Ryan M. Nash reiterated a Buy rating on American Express with a price target of $300.

Goldman Sachs: Nash summarized American Express Co’s third-quarter performance. It reported third-quarter 2024 earnings per share (EPS) of $3.49, surpassing Visible Alpha’s consensus estimate of $3.30. Core pre-provision net revenue (PPNR) exceeded expectations at $4.56 billion compared to the consensus of $4.45 billion, as lower expenses offset slightly weaker revenue.

Core revenue grew 8% year-over-year (FX-adjusted) to $16.64 billion, just shy of the $16.67 billion estimate. Net interest income (NII) rose 16% year-over-year to $4.01 billion, beating expectations of $3.92 billion. In comparison, fees grew 5.8% year-over-year to $12.63 billion, falling short of the $12.75 billion projection due to lower discount revenues. Billed business increased 6% year-over-year (FX-adjusted) to $441 billion, with Goods & Services up 6% and Travel & Entertainment (T&E) slowing to 6%, down from 7% the previous quarter.

Expenses were 1% lower than anticipated, primarily due to reduced variable engagement costs (VECs), as total cardmember costs (including marketing) rose 12% year-over-year to $8.25 billion, below the expected $8.5 billion. Core operating expenses were higher at $3.83 billion compared to the $3.72 billion estimate. Credit performance was in line with expectations, with provisions at $1.36 billion and net charge-offs of 2.1%, which were better than anticipated.

American Express adjusted its full-year 2024 guidance, lowering expected revenue growth to 9% (from the previous 9 – 11% range) and raising its EPS outlook to $13.75 – $14.05, up from the previous $13.30 – $13.80. This increase includes a $0.66 gain from Accertify.

According to Nash, this was a mixed quarter for American Express. Revenues came in slightly below expectations due to weaker discount revenues. However, higher NII and card fees provided some support. Lower-than-expected expenses helped offset higher operating costs.

Credit metrics remained steady, with provisions meeting expectations and losses coming in lower than anticipated. However, the market may be concerned about American Express Co’s revenue mix as NII thrives (16% Y/Y). In comparison, discount revenues increased only 4% Y/Y, raising questions about future growth. The outlook for revenue growth, significantly as NII will likely slow, will likely be a key focus on the upcoming call.

On the upcoming call, Nash will seek insight into what drove American Express Co’s decision to revise its year-over-year revenue growth forecast to around 9%, down from the previous 9%-11%, and the company’s outlook for future revenue growth. The analyst also expected updates on card fees. He will seek an update on billed business growth, which stayed flat this quarter. Additionally, it will be necessary to hear about the trajectory for net interest income (NII), as the growth rate slowed slightly from 20% in the second quarter to 17% but still shows strong performance.

Further, Nash sought the company’s view on customer engagement costs, which were down quarter-over-quarter, with VECs expected to stay near 42%, though they were 40.7% in the third quarter. The analyst also expects more information on the 3.3 million new card acquisitions and whether the company can sustain this momentum. Finally, he sought clarity on credit performance, as net charge-offs (NCOs) came in better than expected.

American Express updated its 2024 guidance, anticipating revenue growth of around 9%, down from the prior 9% – 11%, which matches the consensus estimate of $65.99 billion. It also raised its EPS outlook to $13.75 – $14.05, up from $13.30 – $13.80, with the midpoint implying $13.90 versus the consensus of $13.74.

Based on this, Nash estimates fourth-quarter EPS of around $2.95, just below the consensus of $2.98, and revenue of approximately $17.19 billion, indicating 3.3% quarter-over-quarter growth.

Price Action: AXP stock is down 2.79% at $277.82 at the last check on Friday.

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