The American Express Company (NYSE:AXP) today released their second quarter fiscal 2020 earnings results ended in June, that missed top line but exceeded bottom line estimates causing shares to trade lower pre market.
The company generated $7.68B of revenue, below analyst estimate of $8.25B by 7%, and lower year-over-year by 29%
Earnings per share however beat street consensus of $0.024, at $0.29.
Key Revenue Segments Breakdown
Global Consumer Services Group reported total net revenues of $4.6B, which was below 23% year-over-year. This resulted in a net income of $527M, 40% lower year-over-year.
The company also raised their provisions for losses from $651M a year ago to $886M in the reported quarter, in line with the objective of building there reserves.
Global Merchant and Network Services reported net revenues of $929M, compared to $1.6B in the last year’s second quarter by 41%. Net income came in at $66M, which was far lower than last year’s $564M.
Global Commercial Services generated only $2.3B of revenue, compared to $3.3B a year ago. This led to a net loss of $60M compared to a net income of $561M in the last year’s second quarter.
The poor performances in each of these segments were largely due to card holders lowering their spending, and discount rates being lower than average compared to last year’s second quarter.
Valuation Analysis
The pandemic has negatively impacted the price of American Express’ (Amex) shares the most in comparison to its peers, as shown below.
This is justifiable given that Amex’s revenue growth, which was already lower than its peers heading into the pandemic, has grown the least lately.
Therefore naturally, its Quarterly Return on Equity is the lowest too.
Another point to make is that Amex’s Debt-Equity ratio is the highest amongst its peers, as illustrated below.
Although this could be justified since unlike Visa and MasterCard, Amex issues credit to their clients too instead of just processing payments.
However, in comparison to other traditional issuers of credit, Amex’s financial position is quite riskier given that it has the second highest Loan-Asset ratio.
Thus cumulative to all these factors, it makes sense as to why the company’s Price-Earnings multiple is the lowest amongst its closest peers.
Final Takeaway
Due to the analysis discussed above, it would be wise for investors to hold back and consider other opportunities elsewhere, until American Express improves its financial position.
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