AXP Stock: Should you invest in American Express ahead of earnings?

American Express Company (NYSE: AXP) is a pioneer in digital payment services, with a special focus on the travel and leisure industry. Of late, the fintech firm has been ramping up its non-travel/entertainment business and those efforts came in handy when the COVID restrictions forced people to stay indoors. After making a strong recovery from the pandemic-induced slump, American Express is betting on the record card-member spending and growing network volumes to drive growth.

Investing in AXP

It has been a roller-coaster ride for the company’s stock so far this year, marked by highs and lows at regular intervals. Currently hovering near its recent peak, AXP is expected to move higher in the run-up to this week’s earnings. Analysts’ consensus rating on the company is moderate buy. Making the stock more attractive, American Express recently raised its quarterly dividend to $0.52 per share after keeping it unchanged for nearly three years.

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Read management/analysts’ comments on quarterly reports

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The prudent steps adopted by the management to enhance loan volumes and to offer a better digital experience to customers are paying off. The acceleration in the adoption of digital payment services, especially during the pandemic, will continue to drive revenue growth for American Express in the near future. That is being complemented by the recent improvement in consumer confidence and steady growth in household spending, supported by the recovery in economic activity and the government’s stimulus program.

Market Share

However, the company needs to keep innovating in order to safeguard its market share from credit card giants like Mastercard and Visa, which had replaced the company as the preferred partner to warehouse giant Costco a few years ago. Another concern is the pressure on margins due to high operating expenses, mainly related to marketing and promotional activities like cardmember rewards.

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Visa bets on multi-pronged growth strategy to deliver strong results in future

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The company has reported stronger-than-expected earnings regularly over the past several years, supported by stable revenue performance that remained largely unaffected by the macro headwinds. It ended fiscal 2021 with strong numbers, including a 24% increase in fourth-quarter earnings to $2.18 per share. Driving the profit growth, revenues climbed 30% annually to $12.1 billion and topped expectations.

From American Express’ Q4 2021 earnings conference call:

“We’ve learned a lot over the past few years that we believe will help us achieve our growth plan aspirations. The business imperatives and strategies we focused on pre-pandemic, the decisions we made when COVID-19 first hit to protect our customers and colleagues, and our pivot early in the recovery cycle to ramp up investments in a number of key areas, all proved to be the right moves that have been good for our business.”

Q1 Data Due

The company is currently preparing for its first-quarter earnings release, which is expected on April 22 before the opening bell. Experts are looking for earnings of $2.43 per share on revenues of $11.61 billion. American Express’ stock has gained about 11% so far this year. It reached an all-time high in mid-February, before paring most of the gains in the following weeks. AMX closed the last trading session up 2%.