24 April 2020

Will Amex Get Credit for Revenue Growth?

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What’s happening: American Express Co. is scheduled to report its first-quarter results before the opening bell on Friday, April 24.

What happened: Although consumer spending has declined amid fears of a global slowdown due to the coronavirus pandemic, people are switching to online payments for nearly all transactions because of stay-at-home orders. The increase in online transactions using credit cards puts Amex in a unique position to control the market.

After a robust start to 2020, the New York-based company’s shares have declined through February and March, with COVID-19 beginning to hurt the US economy. Heading into Amex’s earnings release, the stock became highly volatile yesterday, but continued its downtrend

Expectations for the quarter: Amex is expected to report revenue growth for the first quarter revenue, while earnings are likely to decline.

  • The consensus revenue estimate stands at $10.71 billion, up from $10.49 billion in the same quarter last year.
  • The company is expected to report earnings of $1.48 per share, versus $2.01 per share in same quarter last year.

Why it matters: After a strong performance in January and early February, Amex witnessed a decline in spending volumes. The weakness continued in March with travel restrictions being imposed and most retail outlets being closed due to the COVID-19 outbreak.

Amex’s sales are likely to be impacted by its major strategic partner, Delta Air Lines, cutting capacity. Amex issues credit cards with Delta Air Lines under a cobranding agreement, which contributes more than 20% of the company’s card member loans globally.

While these challenges remain, there are opportunities as well. With people being homebound, a lot of offline purchases and activities have shifted online. From ecommerce to education and from entertainment to work, there is a global shift online. The increasing use of online options could continue as a trend even as the economy reopens. American Express is among the main beneficiaries of this shift online.

Despite new products like Apple Pay gaining some traction, the payments market continued to be dominated by the top three credit card companies - Visa, Mastercard and Amex.

How the shares have performed so far: Amex’s stock has lost more than 37% over the past three months. Some analysts believe this to be a good entry point for investors.

What to watch: The slowdown in the US economy could hurt Amex’s prospects. On the other hand, any news of a rise in online transactions will lend support. Investors await the company’s guidance and for management to provide more details of the coronavirus impact on business.

The Markets Today

     

Gold may be in focus today, with the precious metal rising for the second straight day on Thursday

Context: Gold prices settled higher on Thursday, with renewed concerns over the economic impact of the coronavirus outbreak.

Details: The safe-haven metal continued its gains after the US reported an increase in initial jobless claims of 4.4 million for the week ended April 18. This brings the total jobless claims to around 26 million over the past month.

The flash reading of the US services index also plunged to a record low of 27 in April, with manufacturing PMI sliding to its lowest level in almost 11 years

Gold for June delivery gained 0.4% to settle at $1,745.40 an ounce, after hitting as high as $1,764.20 earlier in the session. After climbing 3% on Wednesday, gold prices are on course for a gain of about 2.7% for the week so far.

May silver rose 0.1% to settle at $15.357 an ounce in yesterday’s session, after climbing more than 3% on Wednesday.

Exchange-traded SPDR Gold Shares have risen by more than 2% this week, with the iShares Silver Trust down around 0.4%.

Among other metals, July platinum gained 3% to $788 an ounce, while June palladium climbed 5.8% to $2,001 an ounce on the Comex.

Société Générale analyst Albert Edwards explained the higher demand for gold saying, “In a direct opposite to the glut in the oil market, physical gold is seeing a shortage and so the price on the ‘nearest to deliver’ futures contract is experiencing sporadic $50+ surges in premiums relative to spot.”

In Asian session, gold continued its rise, gaining 0.1% to $1,746 an ounce.

What to watch: The White House has passed a $484 billion bill to help small businesses in the US. This could benefit gold, as the metal is considered a hedge against currency weakening.

Other Markets: US indices closed mixed on Thursday, with the Dow rising 0.17%. The S&P 500 and Nasdaq 100 closed lower by 0.05% and 0.01%, respectively.

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What else to watch today

     

UK’s retail sales, Spain’s industrial new orders and producer prices, Turkey’s business confidence and capacity utilization, Germany’s Ifo business climate index, Indonesia’s loan growth, Mexico’s overall index of economic activity, India’s deposit growth, foreign exchange reserves and bank loan growth, Brazil’s current account, foreign direct investment and business confidence, Russia’s unemployment rate and corporate profits, Canada’s government budget value as well as the US durable goods orders, University of Michigan's consumer sentiment index and Baker Hughes crude oil rigs.

 

 

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