Amex Stock Undervalued Amid Strong Earnings Growth
American Express stock has trailed its peers this year, but investors and analysts may be underestimating its growth potential. With only 48% of Wall Street analysts recommending it as a buy, compared to 93% for Mastercard and Visa, the financial services giant is an often-overlooked investment opportunity.
Concerns about consumer spending weighed on American Express stock in the weeks leading up to its second-quarter earnings release. However, when the company reported Q2 earnings on July 24, investors were pleasantly surprised by strong revenue growth and improved credit quality.
The company's revenue increased 10% year over year to $19.6 billion, beating estimates of $19.7 billion. Earnings rose 11% to $4.53 per share, exceeding expectations of $4.40 per share. Credit quality was also strong, with provisions for credit losses and 30-day delinquency rates down year over year.
American Express raised its revenue guidance for the fiscal year to 10% growth, but kept its earnings guidance at $17.30 to $17.90 per share. CEO Stephen Squeri attributed the higher spending on marketing, technology, and customer engagement and acquisition costs to maintaining high retention rates and ensuring long-term growth.