Amex earnings are better than tagline numbers
American Express ($AXP) reported earnings Friday and market seemed a little disappointed by EPS growth being only +10% for the quarter.
Stock was down -5%
But the lag in EPS growth comes from the US Platinum revamp. All cardmembers are enjoying new generous perks already but annual fees increase from $695 to $895 (+29% !) are being rolled out starting January. So new costs are at 100% but amortized revenues from annual fees are only about ~40% on the new $895 higher fees.
So this will get better each quarter for the next 3 quarters as all the catch up is made.
Earnings call:
Reading between the lines we see that management knows they'll hit easily their profits targets this year.
And they have more capital to deploy than expected and choosing to use it to secure future growth as they won't need that much buyback to hit the mid-teens EPS growth target.
So they didn't raise EPS guidance even if they see better results and revenues.
They rather use that extra money to insure compounding continues instead of having a beat next quarter.
It's really fun to see the CEO (41 years with Amex) and the CFO (30 years) being excited seeing everything aligning for Amex and appreciating the little golden age they will enjoy for the next years.
At $324 now, they are trading at 18.5 GAAP p/e for 2026 mid-point guidance.
Their long term EPS growth target is mid-teens.
What I mean by everything is aligning perfectly for Amex:
- People spending more on experience
- Affluent getting more affluent
- Travel loyalty program savviness getting mainstream
- Credit card adoption + no fear in paying annual fees for value
- Expending internationally
