Seaport Global Securities maintained a Neutral rating on shares of American Express (NYSE:AXP), highlighting modestly above-expectation growth trends in the company's portfolio and credit quality that aligns with or slightly surpasses pre-pandemic levels.
The analyst noted that American Express's U.S. consumer card loan portfolio saw a year-over-year increase of 12.4% to $87.3 billion, exceeding the third-quarter consensus forecast of 10.7%. The month-over-month delinquency rate remained stable at 1.3%, while the charge-off rate rose slightly to 2.2%. Year-over-year, the delinquency formation rate improved, contrasting with the peak observed in January 2024.
In comparison to August 2019, U.S. consumer credit metrics are showing a slight improvement, with current delinquency and charge-off rates at 1.5% and 2.3%, respectively. The company's small business loan portfolio also experienced notable growth, increasing by 22.9% year-over-year to $30.1 billion, well above the anticipated 15.1%.
This growth, however, is a slowdown from the over 30% rates seen in early 2023, as small business spending increased by only 2% year-over-year in the second quarter of 2024.
The analysis suggests that the increase in the small business loan portfolio may be a result of more businesses opting to revolve their balances through the "Pay Over Time" feature. The month-over-month small business delinquency rate held steady at 1.4%, with a year-over-year increase of 20 basis points. Since July 2023, the delinquency formation rate has shown gradual improvement. The charge-off rate for small businesses remained constant month-over-month at 2.3%.
American Express management had previously indicated on the second-quarter 2024 earnings call that they expect write-off rates to remain stable at around 2.1% for the rest of the year. The August data appears to align with this forecast, with small business delinquency rates slightly higher than the pre-COVID level of 1.2% recorded in August 2019.
American Express has reported a significant 44% year-over-year earnings growth in the second quarter, marking a record high in revenue, and adjusted its full-year earnings per share (EPS) guidance to $13.30 - $13.80. The company also issued $3.4 billion in new debt securities, expected to be used for general corporate purposes.
However, the Central Bank of Russia revoked the banking license of the Russian subsidiary of American Express, marking the end of the company's direct banking presence in Russia.
In terms of loan delinquency and write-off rates, American Express has reported stable figures for its U.S. Consumer and Small Business Card Member loans, which increased to $117.4 billion in August from $115.1 billion in July. Analyst perspectives have been mixed, with BMO Capital maintaining an underperform rating on American Express shares, despite adjusting its near-term earnings forecasts upwards due to lower-than-expected expenses.
RBC Capital Markets retained an Outperform rating and increased the share price target to $267, acknowledging the company's steady revenue and well-managed expenses.
InvestingPro Insights
Reflecting on American Express's performance, Seaport Global Securities' neutral stance seems to acknowledge the company's solid growth trends. Enhancing this perspective, InvestingPro data shows American Express with a robust market capitalization of $186.39 billion and a P/E ratio of 19.7, which is considered low relative to its near-term earnings growth. This indicates that the company is potentially undervalued given its earnings trajectory. Additionally, American Express's revenue growth over the last twelve months stands at 9.62%, demonstrating continued expansion in its financial activities.
From the perspective of investor returns, American Express has delivered a strong performance with a 1-year price total return of 66.75%, suggesting that shareholders have been well-rewarded. Moreover, the company has maintained its commitment to shareholders through consistent dividends, increasing the dividend growth by 16.67% over the last twelve months. This is in line with its history of maintaining dividend payments for 54 consecutive years, as highlighted by one of the InvestingPro Tips.
For those considering investment opportunities, American Express is recognized as a prominent player in the Consumer Finance industry, and its liquid assets exceed short-term obligations, indicating a strong liquidity position. With more InvestingPro Tips available to guide potential investors, the platform lists a total of 9 additional tips that can further inform investment decisions regarding American Express.
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