Is This Warren Buffett Stock a Buy After Mixed Q3 Earnings?

In a world where nearly every transaction flows through digital channels, integrated payment systems like those of American Express Company (AXP) are the backbone of financial operations. The legacy financial giant known as AmEx has successfully adapted to the age of digital payments, with its reputation further bolstered by Warren Buffett's long-standing investment. 

Regulatory filings show Berkshire Hathaway (BRK.B), run by the legendary value investor, holds a staggering 151.61 million shares of AmEx worth about $35.1 billion, which accounts for 12.5% of Berkshire's stock portfolio. Buffett’s investment is a powerful endorsement of the company’s macroeconomic resilience and future potential.

However, AmEx shares recently stumbled following a mixed fiscal Q3 earnings report. Is this a prime opportunity to buy the dip in this Buffett pick? Let’s find out. 

About American Express Stock

Founded in 1850, New York-based American Express Company (AXP) is a financial giant renowned for its premium card offerings catering to an affluent clientele. As digital payments have increased in popularity, AmEx has adapted, expanding its reach to millennials and Gen Z with innovative solutions.

From consumers to corporations, AmEx’s blend of luxury, convenience, and rewards keeps it a dominant force in the fast-evolving world of financial services. With a market cap of $195.9 billion, AmEx delivers stability through economic shifts while staying ahead of the curve.

Shares of this financial services provider have gained 87.6% over the past 52 weeks, eclipsing the broader S&P 500 Index's ($SPX)37.5% returns and the Dow’s 29% gains over the same time frame. With a nearly 45% YTD rally, AXP is trailing only Walmart (WMT) as the top-performing Dow Jones Industrial Average ($DOWI) stock of 2024. 

In fact, AXP hit an all-time high of $286.36 on Oct. 17 directly ahead of its Q3 earnings release, indicating that investors may have had overly optimistic expectations for the credit card stock heading into the event.

AmEx’s dividend adds extra shine to its stock appeal. On Sept. 24, the board declared a quarterly dividend of $0.70 per share, payable on Nov. 8, bringing its annualized dividend to $2.80. That’s a modest 1.03% yield, with AXP trading near its highs.

The company has a 35-year history of consistent dividend payments - and while AXP didn’t hike dividends during COVID, it held them steady. With a low payout ratio of 19.8%, there's plenty of room for future growth, making it a reliable choice.

In terms of valuation, American Express stock trades at 20.17 times forward earnings and 2.91 times sales - much lower than its peers Visa (V) and Mastercard (MA), and almost in line with the historical averages.

AmEx Dips on Mixed Q3 Report

Shares of American Express fell over 3% on Oct. 18 following its mixed Q3 financial results. Despite solid revenue growth of 8% year over year, reaching $16.64 billion, the credit card giant slightly missed estimates, signaling that even its affluent cardholders may be tightening their belts. However, the company’s adjusted EPS of $3.49 not only rose by 6% annually, but also surpassed analysts' expectations.

Total Card Member spending climbed by 6%, and card fee revenue surged by 18%. American Express acquired 3.3 million new premium Card Members during the quarter, all while maintaining high retention rates and excellent credit performance. Net interest income also jumped by 16% year over year, reaching $4 billion, further reflecting the company’s financial health.

However, American Express faced rising concerns over souring loans, as reserves for credit losses rose 21% to $5.3 billion by the end of Q3. Net write-offs and 30-day delinquencies also crept higher, suggesting that inflation and economic headwinds are making their mark, even on higher net worth households. The provision for credit losses also jumped to $1.4 billion in Q3, raising flags for investors.

Looking ahead, AmEx hiked its fiscal 2024 EPS guidance, now projecting between $13.75 and $14.05, up from the previous $13.30 to $13.80 range, with revenue growth expected around 9%.

Analysts tracking American Express predict its EPS to grow to $13.35 in fiscal 2024, up 19.1% annually, and then rise another 12.7% to $15.4 in fiscal 2025.

What Do Analysts Expect for American Express Stock?

After AmEx’s mixed Q3 report, multiple brokerage firms adjusted their price targets on the financial firm. Goldman Sachs analyst Ryan M. Nash reiterated a “Buy” rating on AmEx with a price target of $300. 

Baird raised its target price to $240 from $215, while sticking with an “Underperform” rating. With concerns over slowing billed business trends, Baird sees a mixed risk/reward profile for investors, despite the company’s long-term earnings potential.

American Express has a consensus “Moderate Buy” rating overall. Of the 29 analysts covering the stock, nine advise a “Strong Buy,” two recommend a “Moderate Buy,” 14 maintain a “Hold,” and four suggest a “Strong Sell.” 

AXP trades at a premium to the mean price target of $265.19. The Street-high target price of $325 for American Express suggests an upside potential of 19.8%. 

More Stock Market News from Barchart

• What a Rapidly Aging World Population Means for Your Long-Term Portfolio
• Stocks Fall on Higher Bond Yields and Mixed Earnings
• 2 Underperforming Semiconductor Stocks to Grab at a Discount This October
• CMG Earnings Preview: What to Expect from Chipotle Mexican Grill in Q3

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.