Summary
- American Express will report second quarter earnings on Friday morning.
- The company has done an admirable job of growing earnings and revenue in recent years.
- Analysts are far more bearish than I expected.
- The stock has rallied sharply since the December low.
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Credit card issuer American Express (AXP) is scheduled to release second quarter earnings results on Friday morning. Analysts expect the company to earn $2.04 per share for the quarter and that is up 10.9% from the $1.84 the company earned in the second quarter of 2018. Analysts expect the company to report revenue of $10.82 billion for the quarter and that is an increase of 8.2% from the second quarter of 2018.
American Express has been able to grow its earnings at a rate of 16% per yearover the last three years and earnings were up 8% in the first quarter. The average annual revenue growth has been 10% for the last three years and revenue was up 9% in the first quarter.
The company boasts solid management efficiency measurements with a return on equity of 32.7%, a profit margin of 18.8%, and an operating margin of 21.3%.
While many financial institutions are concerned about the Fed meeting at the end of the month and how that might impact their margins, American Express doesn't have that same concern with its lending products. If there is a concern for American Express at this time, it would be that the economy does slow and defaults from cardholders increase as a result.
During the financial crisis and recession of 2007-2009, American Express saw its stock drop from over $50 a share to a low of $8.18. The stock isn't immune to things of this nature and investors need to be aware of that. The stock has gained almost 1,200% since the low in March 2009, and that is a far superior return to the overall market.
The Stock has Outperformed the Market for the last 10 years and in 2019
American Express saw its stock drop sharply in the fourth quarter of 2018, but it has since rallied sharply. From November 28 through the low in December, the stock fell over 20%, and from the Christmas Eve low, the stock has rallied over 44% while the S&P has rallied approximately 27.8%.
We see on the weekly chart for American Express that the stock moved higher from early 2016 through the first 11 months of 2018 and a trend channel formed that defined the different cycles within the overall upward trend. The stock fell below the lower rail in December with the sharp decline, and it took the stock several months to move back above that lower rail. Now the stock is near the upper rail of that channel.
As the stock approaches the old upper rail, it is worth noting that the stock is also overbought based on the 10-week RSI and the weekly stochastic readings. If we look back to the second half of 2017, the fact that the stock was overbought didn't seem to mean very much. The stock continued to climb and the indicators remained in overbought territory for most of the second of that year.
American Express is also overbought on its monthly chart with the 10-month RSI currently at 74.01 and the weekly stochastic readings are just under 90. Again, looking back at other periods of time, the overbought status didn't seem to mean much to investors as the stock was in overbought territory on the monthly chart for almost all of 2013 and the stock gained over 50% during the year.
The overbought readings on the weekly and monthly charts are less of a concern for American Express than they might be for other companies just based on history.
