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American Express Company AXP reported second-quarter 2016 operating earnings per share (EPS) of $2.10, which surpassed the Zacks Consensus Estimate of $1.92 by 9.4%. Moreover, EPS was up 48% year over year, primarily on a decline in expenses. Share buyback also aided the bottom line.
Revenues of $8.24 billion were just ahead of the Zacks Consensus Estimate of $8.21 billion and down 1% year over year, due to the impact of a strong dollar on international operations.
AMER EXPRESS CO Price, Consensus and EPS Surprise
Consolidated provisions for losses totaled $463 million, down 1% year over year.
American Express’ total billed business, or global card spending, was $269.3 billion, 3% higher year over year. Cards used worldwide declined 5% year over year to $108.2 billion.
Consolidated expenses of $4.8 billion were down 15% year over year. This was mainly because the company gained from the cobrand loan portfolio sale, which was recorded as an expense reduction.
The effective tax rate was 33% against 34% in the year-ago quarter.
American Express’ U.S. Consumer Services segment reported net income of $1.1 billion, up 74% year over year. Total revenue, net of interest expenses, decreased 3% to $3.2 billion due to a decline in Costco-related revenues from the year-ago levels, coupled with an increase in cash rebate rewards. Provisions for losses totaled $237 million, down 2% year over year. Total expenses plunged 40% year over year to $1.3 billion as the gain on the sale of the cobrand portfolio was set off against expenses.
International Consumer and Network Services’ net income amounted to $228 million, which increased 18% year over year. Total revenue, net of interest expenses, climbed 6% year over year to $1.4 billion, driven by higher bank partnership revenues and Card Member spending.
Global Merchant Services’ net income increased 1% year over year to $373 million. Total revenue, net of interest expenses, was down 3% year over year to $1.1 billion, due to a lower average discount rate which more than offset higher card spending.
As of Jun 30, 2016, American Express’ total assets increased 2% year over year to $160 billion, while long-term debt decreased 4% year over year to $51 billion. The company held cash and cash equivalents of $34 billion, up 62% year over year. Shareholder equity declined 5% year over year to $21 billion as of the quarter end.
American Express’ return on average common equity (ROCE) was 26.4% as of Jun 30, 2016, down from 28.1% on Jun 30, 2015.
The company spent $1.7 billion in the quarter on share buyback.
American Express reaffirmed its previous guidance for the full year. The company maintained its EPS projection at $5.40–$5.70, reflecting its strong business model.
In June, the company passed the Federal Reserve’s annual stress test. Its capital plan submitted for review was accepted, pursuant to which the company will now increase its quarterly dividend by 10% to 32 cents per share and repurchase up to an additional $3.3 billion shares over the next four quarters.
The company will continue with its elevated spending on growth initiatives to face the intensely competitive market. Despite high expenditure, the company expects to post strong results over the coming quarters led by expanding merchant coverage, loan growth and spreading global network among other positives.
American Express carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the space are Total System Services, Inc. TSS, Envestnet, Inc. ENV and Visa, Inc. V. Each of these stocks carries a Zacks Rank #2 (Buy).
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AMER EXPRESS CO (AXP): Free Stock Analysis Report
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