American Express Company (NYSE:AXP) reported Q1’17 EPS of $1.34, ahead of Consensus at $1.27 on better than expected billings, healthy revenue growth and in-line expenses. Overall, Bank of America Merrill Lynch thinks Q1 results will be well-received. Adj. revenue growth accelerated QoQ and is above the 5-6% target range for FY’17. American Express reaffirmed its EPS and revenue growth targets but did suggest the high-end of the revenue growth range is within reach. The tone of the earnings call was positive, despite American Express not wanting to be overly optimistic that the Q1 momentum will persist. Importantly, American Express demonstrated strong performance across all of its targeted growth initiatives, which gives the firm greater confidence that American Express can get back to sustainable and predictable EPS growth. All in, the firm thinks Q1 should remove some of the investor anxiety that the intense competitive backdrop would erode American Express’s franchise. BAML reiterates its Buy rating and $94 PO, suggesting almost 25% upside potential.
Billings growth accelerated late in Q1, above American Express’s expectations, driving the better than expected Q1 results relative to its recent guidance. Revenue growth accelerated to 7% in Q1’17 from 6% in Q4’16 driven by healthy lending and spending volumes and good margins. Encouragingly, Q1 revenue growth was broad based with both the US business and international markets showing decent growth. Loan growth is expected to persist at above-industry levels and the firm expects American Express’s strategy to target existing card members will deliver loan growth without a similar growth in credit losses. Importantly, H2’17 comps should be easier, driving strong reported results across most major metrics.
BAML reiterates its Buy rating and $94 PO, based on ~15x PE multiple to its 2018E. The firm raises its FY’17 & FY’18 estimates to $5.72 and $6.40, respectively, to reflect modestly faster billings and loan growth. Given relatively modest Street expectations and strong Q1 momentum, BAML expects estimates to rise modestly. Importantly, sentiment remains balanced on American Express, suggesting further upside potential as investors gain better visibility into American Express’s growth prospects. That said, the firm anticipates valuations on American Express to expand and BAML thinks there is some upside to its 15x target multiple, which is roughly 85% of the market multiple and a discount to American Express’s historical valuation.