What happened
Shares of consumer finance giant American Express (AXP 1.54%) soared 18% in January, according to data from S&P Global Market Intelligence. It posted an outstanding fourth-quarter report with excellent guidance for the new year.
So what
The stock market ended last year down nearly 20%, with many economists warning of a possible recession, in addition to inflation and global macroeconomic volatility. Rising interest rates in particular are affecting financial companies. But American Express has been boasting stellar performance despite the drama.
In the 2022 fourth quarter, revenue increased 17% over last year, and billed volume increased 12%. Net income dipped 9% fueled by an increase in provisions for losses, a result of rising interest rates and higher potential for defaults. Revenue beat Wall Street analyst estimates, although earnings per share (EPS) came in slightly below. Full-year sales increased 25% over last year, and EPS of $9.85 were above management's expectations, although they were down from $10.02 last year.
Investors were delighted, though, with American Express' 2023 outlook. Management is guiding for 16% sales growth and $11.20 in EPS at the midpoint.
American Express has pivoted to a market of a younger core clientele, and this group is increasing its membership and card engagement. A year ago, the company launched a growth plan with the ambitious goal of delivering higher growth than before the pandemic. So far, it's achieving strong results. It added a record 12.5 million new cardmembers for the full year, with 70% acquiring fee-based products. Fees fund income and typically account for more than 10% of net revenue. They accounted for 11% in the fourth quarter, or a 17% increase over last year. That growth has increased over the past few quarters as the company does an excellent job recruiting new cardmembers for fee-based products.
American Express card fee growth. Image source: American Express,
Now what
American Express is well positioned to keep up the good work and demonstrate resilience in 2023. Its stock is still down almost 4% over the past year, but it's up 21% so far this year.
American Express stock is one of Warren Buffett's longest-held equity positions, and it meets the criteria of a classic Buffett stock. Shares trade at the cheap valuation of 18 times trailing 12-month earnings, and it issues a growing dividend that was just raised 15%. American Express is an excellent value pick for long-term investors.
