Why American Express Fell Today
Key Points
American Express beat expectations on revenue and earnings.
However, management only maintained prior guidance, saying that it would reinvest more in the business this year.
The war in Iran also threatened to re-escalate, sending oil prices higher.
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Shares of credit card giant American Express (NYSE: AXP) fell on Thursday, down 4.6% as of 2:16 p.m. EDT.
American Express released its first-quarter earnings report this morning, and the results appeared quite strong, conflicting with the negative price action.
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Investors may have been hoping for an increase in full-year guidance following the first-quarter beat, but that didn't happen. Additionally, the ceasefire in Iran appeared shaky, pushing oil prices higher.
American Express delivers
In the first quarter, American Express reported revenue of $18.9 billion, up 11.4%, and earnings per share of $4.28, up 17.6%. Both figures beat analyst expectations.
Given the solid beat, investors may have been hoping for an increase to full-year guidance; however, management only reiterated the guidance from the prior earnings release in January, forecasting 9% to 10% revenue growth and earnings per share between $17.30 and $17.90, in line with analyst estimates.
But management said it doesn't see a slowdown in growth from here. Rather, CEO Steve Squeri noted that American Express plans to increase its marketing and technology investments this year to "capitalize on long-term growth opportunities."
Investors may have been hoping for an increase in share repurchases or larger dividend increases instead of more spending. One concern may have been that Amex would have to spend more on artificial intelligence just to keep up with rivals and the pace of technological change.
Still, it's more important for long-term shareholders that American Express maintain a strong competitive position and sustains growth. Aside from the increased spending plans, there weren't any real blemishes in this earnings report, except for the commentary on increased investments.
A secondary factor in today's stock decline may have been a potential reescalation in the U.S. war with Iran. Earlier today, it was reported that peace talks have stalled, sending oil prices higher. While higher oil and gas prices would theoretically cause American Express cardholders to spend more on gasoline, higher oil prices tend to be viewed as a threat to the overall economy and, therefore, to financial stocks like Amex.
Image source: Getty Images.
American Express has pulled back to a buyable range
While trading at a higher-than-historical valuation much of last year, Amex stock now trades at around 18 times the middle of this year's earnings estimates. That's at the lower end of the stock's range over the past few years, so long-term investors may wish to consider buying or adding to their American Express stock holdings on this dip.
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American Express is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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