Story Stocks®
Updated: 24-Jan-25 14:35 ET
American Express maxed out after reaching record highs, casuing post-earnings report pullback (AXP)
After soaring by about 130% since late October, to trade at record highs yesterday, credit card company American Express (AXP) seems to have maxed out -- at least temporarily -- after reporting Q4 results before the open today. Although the company edged past EPS expectations, the degree of upside was far more modest compared to recent quarters, and its in-line FY25 EPS and revenue guidance failed to impress, resulting in a profit-taking pullback.
However, AXP's results were solid overall as the company continues to see resilient spending and benefit from its higher income customer base. Additionally, after exiting 2024 with increased momentum, AXP announced that it's raising its quarterly dividend by 17% to $0.82/share from the prior amount of $0.70/share.
However, AXP's results were solid overall as the company continues to see resilient spending and benefit from its higher income customer base. Additionally, after exiting 2024 with increased momentum, AXP announced that it's raising its quarterly dividend by 17% to $0.82/share from the prior amount of $0.70/share.
- Buoyed by a strong holiday shopping season, spending grew by 8%, representing an uptick from the 6% range AXP has experienced over the past few quarters. Growth was broad based as both the Travel & Experiences (T&E) and Goods and Services (GNS) categories contributed to the jump in spending. Staying true to form, the millennial and Gen Z cohorts outpaced other age groups with spending up 16% yr/yr.
- A core tenet of AXP's growth strategy is to focus on this younger and more affluent demographic. This plan continues to pay dividends as the number of millennial and Gen Z customers with premium products is growing at the fastest rate across the industry.
- On the topic of premium products, AXP refreshed over 40 products globally in 2024, including the U.S. Consumer Gold Card, which has been quite successful with younger customers. In 2025, the company intends to keep its foot on gas, planning to refresh between 35 and 50 products with other enhancements to its membership model on the way.
- Another benefit of having a more affluent customer base is that its customers are more resilient to macroeconomic headwinds, resulting in lower delinquencies. AXP's net write-off rate was just 1.9% in Q4, down 10 bps from the year-earlier period, and consolidated provisions for credit losses decreased by $100 mln yr/yr to $1.3 bln.
- As noted above, the main issue that's holding the stock down is that AXP's FY25 EPS and revenue guidance of $15.00-$15.50 and $71.2-$72.5 bln was only in-line with expectations. Still, the company's outlook equates to solid EPS growth of 12-16% yr/yr and its aim of attaining mid-teens earnings growth in the long run remains in place.
There was plenty to like in regard to AXP's Q4 results, most notably including the 16% yr/yr EPS growth and the upswing in spending growth across its network. Thanks to its affluent customer base and consistent execution, AXP remains a best-in-class name in the credit card industry, despite today's pull-back in the stock, which we chalk up to some profit-taking after the stock's meteoric run to record highs.