American Express: Volume Recovering But Costs Rising Faster In Q3

(Preview) Company Update (AXP US) (Neutral)

Summary

• AXP stock rose 5.4% on Friday after Q3 2021 results, but we see evidence of structural issues beneath the strong headlines.

• Even with volumes now exceeding 2019 levels, pre-provision pre-tax income remained 28% below, and fell 3% from Q2 2021.

• Lower profits were due to structurally higher costs, mainly in customer engagement costs and marketing, the result of rising competition.

• Net Interest Income can stay weak due to lower loan balance and yield, and Buy Now Pay Later is a threat to AXP.

• AXP stock is now trading at more than 20x 2022 EPS, and the post-2022 EPS outlook may be cut to allow more investments. Avoid.

Introduction: Why is AXP Stock Up?

American Express stock rose 5.4% on Friday (October 24) after the company released Q3 2021 results.

We initiated our Neutral rating on AXP in March 2019. Since then shares have gained 72.7% (including dividends), with the bulk of the gain occurring in 2021 year-to-date (when AXP stock gained 55.8%). AXP share price has now outperformed thos…