American Express Earnings Preview: Second Quarter 2009

American Express [[AXP]] is scheduled to report their second quarter 2009 results after the market closes on Thursday, July 23. Based on our analysis, we at are expecting AXP to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $6.33 billion and EPS of $.35. This would represent a 15% decline in revenues from last year’s $7.48 billion in the same period. The current analyst consensus estimates calls for revenues of $6.29 billion and EPS of $0.28.


Last quarter, American Express managed to deliver surprisingly strong earnings results that exceed the Street’s expectations. This quarter JP Morgan [[JPM]], Citigroup [[C]] and Bank of America [[BAC]] have all posted better than expected earnings results which we view as a positive for AXP. We believe the economic environment improved somewhat in the second quarter which should enable AXP to deliver better than expected results once again, but remain concerned about increasing credit losses and declining consumer spending.


While Jim Cramer and others have other have declared that the credit markets are stabilizing despite concerns about escalating unemployment, we believe it may be a little premature to give the “all clear” signal just yet. While credit defaults may not reach the levels that some doom-and-gloom prophets were declaring, we continue to believe that it represents one of the greatest risks to our financial system over the next few months. With the unemployment rate set to hit 10% in 2009, credit defaults are likely to continue rising.


Share Performance

Since the beginning of the year, American Express’s shares are up an amazing 51%. In 2008, AXP’s shares plunged 64% and badly underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 19x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. We believe that American Express continues to be a very speculative play. If credit is stabilizing, then we would expect AXP to blow away Wall Street’s 2010 numbers. However, with unemployment continuing to rise we would remain on the sidelines for now.


Recommendation: Hold with a $25 price target.


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