American Express Earnings, Perhaps Immune From Credit Concerns (AXP, MA, DFS)

Monday will be an interesting day for American Express (NYSE:AXP), or so it would seem.  The solid banks, brokers, and credit issuers have all been revealing increases in defaults and in loan losses.  American Express has perhaps the highest credit quality in its client-base out of the entire lending and credit sector. First Call is looking for results to be $0.86 EPS and $7.49 Billion in revenues.  The actual numbers Monday should take the backseat to the general credit issues of its customer base.

If you believe in the perfect market theory or efficient market theory, the market has said that credit erosion or loan losses at Am-ex are not a problem.  Otherwise the stock wouldn’t be within 2% of an all-time high when every other lender has seen share prices come in from deteriorating credit conditions.  But it seems hard to imagine they would be immune.  The likely ‘tell’ on the situation is that the company will note a somewhat similar situation as all the other lenders but not enough to harm the company. If that is not the case, then it seems Goldman Sachs’ recent upgrade last week would have consequences.  Any unknown problems could also spill over into competitors MasterCard (NYSE:MA) and Discover (NYSE:DFS).

The average ‘buy’ price target from analysts is still north of $70.00, and as noted the shares are within 2% of highs.  The company rarely has any shocks during its earnings, so be sure to pay extra attention to its verbage on credit conditions for its customer base.  If the company is perceived to be entering the same round of credit quality concerns from its clients, the hurt might not just be limited to American Express.  Wealth doesn’t always trickle down when times are good for the wealthy, but if the rich are under pressure that will not bode well for everyone else.

American Express no longer has its conference call during the trading day, as it has now gone to an after-hours review, with official results shortly after the market close.  The company used to release earnings unofficially through media during the trading day around 1:00 PM EST.

Jon C. Ogg
July 22, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.