American Express Company (NYSE: AXP), a company that competes with Visa Inc. (NYSE: V), MasterCard Incorporated (NYSE: MA), and Discover Financial Services (NYSE: DFS), issued Q2 results earlier in the week. Earnings from continuing operations dropped very steeply to 9 cents per share. How steeply? Well, the per-share profit lost 84% of its value this time around. However, it might make you feel a little better to know that 18 cents can be added back, since that was the net worth of repurchase activity relating to preferred shares from the U.S. Treasury department. Therefore, American Express took in 27 cents per share from continuing activities. According to this Reuters piece, that number met expectations.
The Reuters article also points out that revenues fell by 18% and that net charge-offs increased. Not a great picture. Reading through the press release, an investor might come away with a feeling of dread. Management mentions the not-so-strong spending by its cardmembers and the fact that loan losses are at historic levels.
And you have to appreciate the position American Express is in. I really do empathize in a sense. As an example, the company needs to market itself to grow, correct? Well, as the press release implies in one section, it's difficult to do that when the economy is bad and you have to first deal with all the late payments and bankruptcies.
The thing about American Express that should be of comfort to shareholders is the fact that it is an enormously popular brand, a big name in its field. Of course, with the financial crisis, the long-term chart on the stock isn't too attractive these days. Shares of American Express have been doing well as of late, though. They're up a lot on the year-to-date frame.
That being said, I wouldn't buy American Express. I just can't. Management's commentary just doesn't reassure me that buying after the run-up the stock has seen is justified at this point. Maybe it is, but hey, I don't want to take the chance. If I want to buy a company in this area, know what I'd buy? Visa. I love that company's risk profile: while it can and will suffer from a bad economy, at least its model is all about transaction fees and not about loan risk. I'm sure American Express will be around for a long time to come, but I'm not inclined to invest in it.
Disclosure: I don't own any company mentioned; positions can change without notice.
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