AXP Stock Falls 5% as American Express Prepares for Loan Defaults

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Despite a positive start to the session for major indices today, American Express (NYSE:AXP) is representing one of the lowlights. The company did post an overall encouraging third-quarter earnings report, beating estimates for both the top and bottom lines. Unfortunately, though, expanded provisions for bad loans have soured the mood for investors. At one point today, AXP stock fell more than 5%. As of this writing, shares are now down by over 3%.

On paper, the firm posted revenue of $13.6 billion, representing a year-over-year (YOY) spike of 24%. This figure also set a record high. On the profitability component, American Express posted $1.8 billion as well, or EPS of $2.47. Analysts surveyed by FactSet pegged the company to post EPS of $2.40 on sales of $13.5 billion.

Breaking things down, continued travel spending contributed significantly to American Express’ strong results. American Express CEO Stephen Squeri had the following to say:

“The demand for travel has exceeded our expectations throughout the year, with spending on T&E [travel and entertainment] increasing 57 percent from a year earlier and T&E spending volumes in our international markets surpassing pre-pandemic levels for the first time this quarter, both on an FX-adjusted basis.”

AXP Stock May Encounter Macro Headwinds

Still, not every item presented a positive backdrop for AXP stock. In particular, Bloomberg notes that “provisions for souring loans” hit $778 million in Q3. This is worse than the outlet’s analyst survey consensus of $573 million. Per Bloomberg, this dynamic suggests that rising interest rates may start to crimp customers’ ability to pay their bills.

Management said the reserve build for bad loans “was due to both growth in its card business as well as anticipation of a tougher macroeconomic climate,” per Barron’s. CEO Stephen Squeri elaborated:

“We have not seen changes in the spending behaviors of our customers, but we are mindful of the mixed signals in the broader economy and have plans in place to pivot should the operating environment change dramatically, as we have done in the past.”

Nevertheless, the matter presents at least a curious circumstance for AXP stock. Generally speaking, American Express carries a reputation for catering to wealthier-than-average clientele. For instance, its top-of-the-line Centurion cardmembers command an average net worth of $11.4 million.

While such folks may be insulated from economic shocks, the company’s middle-income cardmembers may not be so fortunate. As a result, investors may want to exercise a greater deal of caution with AXP stock.

On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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