American Express Expected to Report Continued Earnings Growth for Q4 2014

Author's Avatar
Jan 19, 2015
Article's Main Image

American Express (AXP, Financial) is set to report fourth quarter 2014 earnings on Jan. 21. For the quarter, analysts expect revenue of $8.53 billion and earnings per share of $1.38. For the full year, analysts consensus is for revenue of $33.79 billion and earnings per share of $5.56.

In the third quarter, American Express reported strong growth. Earnings per share were up 12% from the third quarter of 2013 and year to date earnings per share were up 14%. Card Services, which generated 71% of revenue, reported growth in both the U.S. and international regions. In the U.S., Card Services revenue was up 6% from the third quarter of 2013. In International Card Services revenue was up 3%.

Card Services will continue to be a key business segment to watch in the fourth quarter. The company continued to improve on its card rewards during the quarter with an announcement on its extended partnership with Delta. With the partnership, cardholders will continue to receive membership rewards and other benefits from Delta Air Lines purchases with American Express credit cards.

In the credit card sector overall, consumers continued to show increased confidence in spending during the fourth quarter as energy prices continued to reach new lows. In the U.S., credit card accounts for the year have been steadily increasing according to the Federal Reserve’s most recent Consumer Credit report. In 2014, credit card account openings have increased 11.83% on average per quarter. The increased consumer confidence is expected to help Card Services for American Express.

As a credit card servicing leader in the industry, American Express is continuously working to build partnerships and improve servicing for credit cards worldwide. In the third quarter, the company’s Global Network and Merchant Services business accounted for 17.4% of revenue. At $1.45 billion the business segment grew revenue a steady 5% from the third quarter of 2013. During the quarter, management reported at the Goldman Sachs U.S. Financial Services Conference on its efforts to increase digital payment capabilities specifically through mobile applications. The company reported 9.6 million mobile app downloads through the third quarter of 2014, which was a year over year increase of 37%. At the conference, management also discussed new initiatives for digital payments with Uber, Apple Pay, CMT Taxi’s and McDonald’s.

In a November press release, management also reported on new security services that would help the processing of credit cards globally. The American Express Token Service will help the company increase the security of credit card use worldwide allowing for a more secure customer experience.

Overall, the fourth quarter outlook appears positive for American Express, with earnings per share estimates showing comparable quarter growth of 14%. The stock has an approximate discounted cash flow value of $97.31, and analysts have an average target price of $98.71, making it a stock to watch closely in the week ahead.