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AmEx Flexes Premium Muscle in Q1: But Can it Outrun Tariff Headwinds?
AXPAmerican Express(AXP) ZACKS·2025-04-23 16:55

Core Viewpoint - American Express (AmEx) maintains its revenue and profit guidance for 2025, supported by a resilient affluent customer base that continues to spend despite macroeconomic challenges [1][3]. Financial Performance - Q1 2025 EPS reached 3.64,exceedingestimatesby5.53.64, exceeding estimates by 5.5% and reflecting a 9% year-over-year increase [3]. - Network volumes for Q1 2025 totaled 439.6 billion, marking a 5% increase year-over-year [3]. - U.S. Consumer Services reported a pre-tax income of 1.7billion,up71.7 billion, up 7% year-over-year, while Commercial Services saw a decline in pre-tax income to 836 million, down 5% year-over-year [3]. - Revenue guidance for 2025 is reaffirmed at an 8-10% growth from 65.9billionin2024,withEPSguidancesetat65.9 billion in 2024, with EPS guidance set at 15-15.50,upfrom15.50, up from 13.35 in 2024 [3]. Market Estimates - The Zacks Consensus Estimate predicts a 13.9% year-over-year increase in AmEx's 2025 earnings, with 2026 earnings expected to grow by 14.5% [5]. - Revenue estimates for 2025 and 2026 indicate year-over-year growth of 8.5% and 8.4%, respectively [5]. - AmEx has a history of surpassing earnings expectations, with an average surprise of 5.2% over the past four quarters [5]. Stock Performance - Over the past month, AXP shares have declined by 9.1%, aligning with the broader industry downturn, yet outperforming both the industry average and the S&P 500 Index [6]. - Competitors Visa and Mastercard experienced smaller declines due to lower exposure to credit risk compared to AmEx [6]. Valuation Insights - AmEx is trading at a forward P/E ratio of 15.84X, above the industry average of 13.98X, indicating strong investor confidence [8]. - Visa and Mastercard trade at higher multiples of 27.39X and 31.51X, respectively, reflecting their different business models and risk profiles [8]. Business Model and Strategy - AmEx's dual role as a credit card issuer and network operator allows it to capture a larger share of transaction economics, contributing to a more profitable business model [9]. - The company is experiencing strong credit performance and operational efficiency, with rising cardmember spending and expanding lending operations [9]. - A 9% year-over-year decline in Q1 provision for credit losses to 1.2billionsuggestsimprovingcreditqualityandreducedexpectationsforcustomerdefaults[10].SpendingTrendsandFutureInvestments−Travelandentertainmentspendingremainsrobust,particularlyinlodging,dining,andentertainment,areaswhereAmExisfocusingitsefforts[14].−TheacquisitionofCenterenhancesAmEx′spresenceinhigh−enddiningandlifestyleexperiences,reinforcingitspremiumvalueproposition[14].−AmExistargetingGenZandMillennialsthroughmarketingeffortstobuildbrandloyaltyforfuturegrowth[15].FinancialPosition−AttheendofQ12025,AmExhad1.2 billion suggests improving credit quality and reduced expectations for customer defaults [10]. Spending Trends and Future Investments - Travel and entertainment spending remains robust, particularly in lodging, dining, and entertainment, areas where AmEx is focusing its efforts [14]. - The acquisition of Center enhances AmEx's presence in high-end dining and lifestyle experiences, reinforcing its premium value proposition [14]. - AmEx is targeting Gen Z and Millennials through marketing efforts to build brand loyalty for future growth [15]. Financial Position - At the end of Q1 2025, AmEx had 52.5 billion in cash and cash equivalents, up from 40.6billionattheendof2024,withshort−termdebtat40.6 billion at the end of 2024, with short-term debt at 1.6 billion [16]. - The company returned value to shareholders by repurchasing 2 million shares for 700millionandpaying700 million and paying 600 million in dividends during the quarter [16].