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Dow-30 Earnings: American Express - Fourth Quarter 2012
After preannouncing details about its December quarter on January 11th, credit card behemoth American Express (AXP – Free American Express Stock Report) recently released its complete financial results for the interim. Excluding a variety of charges (discussed below), share earnings came in at $1.09, which mirrored our estimate. Total revenues exceeded $8.1 billion, 5% higher than the year-earlier tally. The decent top-line showing was fueled by an 8% increase in cardmember spending, as well as greater net interest income, which stemmed from growth in Amex's loan portfolio. The consolidated provision for loan losses totaled $638 million, up 56%, year over year. That said, the sharp increase reflected higher reserve releases. Overall, credit quality remains at a very high level. For the year, in our view, Amex performed well, reaching share earnings of $4.40, almost 8% better than 2011's performance. American Express stock was relatively flat following the fourth-quarter report.
As for the charges incurred, they stemmed from various restructuring efforts and other operational changes. During the December quarter, $400 million ($287 million after tax) was spent in order to control future operating expenses; $342 million ($212 million after tax) went toward future redemptions of Membership Rewards points; and $153 million ($95 million after tax) for cardmember reimbursements. As mentioned, we considered these charges to be one-time in nature and, thus, have excluded them from our financial presentation.
Looking ahead, we continue to like American Express' prospects. Although there are still economic concerns, both at home and abroad, we anticipate that cardmember spending will continue to increase at a healthy rate over the next several years. Furthermore, Amex's customers generally possess good credit scores, and we look for the provision for loan losses to remain at a very manageable level. Continued, gradual improvements in the U.S. housing and job markets would also benefit the company's top and bottom lines.
For 2013, we are reaffirming our earnings estimate of $4.85 a share, which would represent a 10% year-over-year advance. Our long-term outlook remains favorable, as well, and we project that earnings will reach $6.00 a share by the 2015-2017 timeframe.
As for the stock, it has performed well of late. In fact, over the past 12 months, the price has advanced more than 20%. For comparison, the Dow is up just 8% over the same period. Even so, we think that AXP still appears a bit undervalued. It is currently trading at just 12.5 times our 2013 share-net estimate, which is below its historical average and the multiple we project to 2015-2017. All told, we continue to believe that Amex would make a fine addition to most equity portfolios, particularly those with a conservative, long-term approach.
About The Company: Established in 1850, American Express Company has grown to become a leading global payments, network, and travel firm. It operates through multiple business segments, including the Global Consumer Group and Global Business-to-Business Group. The company sold its AMEX Life business in October of 1995 and its American Express Bank in February of 2008. In mid-1994, it spun off Lehman Brothers to shareholders and ten years later, did the same with American Express Financial Advisors.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.