By Emily Bary
American Express Co. topped earnings and revenue estimates Friday as the company benefited from an acceleration in consumer spending and saw further recovery in the travel and entertainment categories that had been hit hard earlier in the pandemic.
The financial services company posted third-quarter net income of $1.8 billion, or $2.27 a share, up from $1.1 billion, or $1.30 a share, in the year-earlier quarter. Analysts tracked by FactSet were expecting $1.80 a share.
American Express’s /zigman2/quotes/203805826/composite AXP -8.62% revenue net of interest expense grew to $10.9 billion from $8.8 billion, while analysts had been modeling $10.5 billion. Cardholder spending on goods and services accelerated and was up 19% relative to the third quarter of 2019, the company disclosed in its release.
Shares gained 5.4% in Friday trading, making for their largest single-day percentage gain since Nov. 9, 2020, when they rose 21.4%.
The company benefited from a “a continued rebound in travel and entertainment spending,” Chief Executive Stephen Squeri said in the earnings release. Restaurant spending was “notably resilient” and showed growth above pre-pandemic levels.
He also highlighted that Amex has made progress with its efforts to attract younger customers, with spending by millennial and Gen-Z cardholders up 38% compared with the third quarter of 2019. The company acquired 2.6 million new proprietary cards in the quarter and saw “all-time highs” in acquisitions of U.S. consumer and small-business Platinum and Gold cards.
The company’s traction with younger cardholders reflects work over the past few years to “pivot the value proposition” and make it so that card benefits reflect the interests of millennial and Gen-Z spenders, Chief Financial Officer Jeff Campbell told MarketWatch.
While the company offered some temporary benefits, like wireless credits, during the trough of the pandemic when people weren’t traveling, Amex has largely wound those down by now. Still, Campbell said that customers who once took advantage of the temporarily benefits are still spending in those categories even though Amex has ended those offers.
Susquehanna Financial Group analyst James Friedman wrote that he was increasing his estimates for the remainder of this year and into 2022 ” based on better top-line performance and some abatement of the ‘value injection’ of incentives designed to boost product relevance among consumers.” Friedman has a neutral trading on American Express shares and upped his price target to $190 from $165.
Overall, the company sees “tremendous growth momentum,” according to Campbell. “For both consumers and small businesses, we’re increasingly confident that there’s been a permanent shift in the use of digital payment methods.”
Amex is “confident in our ability to be within the high end of the range of the EPS expectations we had for 2020 in 2022,” Squeri said in the company’s press release.
The company’s consolidated provisions for credit losses amounted to a $191 million benefit in the third quarter, whereas the company saw a provision expense of $665 million in the year-earlier period. Amex noted that the change largely reflected $393 million in credit reserve releases as well as lower net write-offs during the most recent period.
RBC Capital Markets analyst Jon Arfstrom wrote that Amex executives seemed “very encouraged on the trajectory of customer spending activity and the response to their customer acquisition efforts to date.” Given the strong credit quality, he argued that “the set-up for 2022 remains positive, with strong revenue tailwinds, manageable expenses, and clean credit.”
Arfstrom has a sector perform rating on the shares and lifted his price target to $195 from $185.
Shares of American Express have added 9.5% over the past three months as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -2.53% has risen 2.5%.