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Why American Express Stock Plunged Today

By Jordan Wathen - Jan 22, 2016 at 12:59PM

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Cost cuts and a one-time gain were the few positives in a generally bad fourth-quarter earnings report.

What: Shares of American Express (AXP 1.40%) are trading lower by about 12% as of 12:15 p.m. ET as investors digest its 2015 earnings and plans for 2016 and beyond.

So what: As if 2015 weren't bad enough for American Express, 2016 doesn't look much better. The impending end to its partnership with Costco (COST 0.96%) could weigh heavily on its results for some time to come.

American Express revealed that it intends to undergo yet another restructuring aimed at cutting $1 billion in annual expenses by 2017. In addition, it announced that it expects to record a $1 billion gain from the sale of its Costco credit card portfolio.

Call it a short-term gain for longer-term pain. American Express executives were hopeful that the company could use the proceeds gained from selling its Costco credit card loans to fund efforts to boost its non-Costco businesses. Wall Street is clearly skeptical that the transition will be easy.

Now what: Looking ahead, the company guided for diluted earnings per share of $5.40 to $5.70 in 2016, up slightly from the $5.05 per diluted share it reported for 2015. Guidance for 2017 wasn't much better, with management noting that it expects to earn "at least" $5.60 per diluted share that year, less than the high point of the 2016 range.

As Wall Street expressed its view of its earnings through the stock price, it was reported that activist investing firm ValueAct decided to move on from its recently acquired stake in the company, valued at more than $1 billion in Sept. 2015. 

With a leading activist out of the stock and guidance for little earnings growth over the next two years, it'll likely be a long road back to the days when American Express reliably produced double-digit growth each and ever year. 

 

Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

American Express Company Stock Quote
American Express Company
AXP
$159.71 (1.40%) $2.20
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$545.88 (0.96%) $5.21

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