Munger versus Buffett on Amex: Analysts Have Conflicting Views



Amex estimates for 2016

American Express (AXP) has seen weak operating performance recently. As a result, Charlie Munger, vice chairman of Berkshire Hathaway, is concerned about the company’s future. However, Berkshire Hathaway’s CEO, Warren Buffett, is confident of the company’s future and capacity to form more partnerships.

American Express is expected to post EPS of $1.93 for the June quarter, $5.57 for the full year, and $5.60 for 2017. Analysts expected weak performance until 2017. Overall, the valuations have been weak and low as compared to its peers.

Amex reported its 1Q16 earnings on April 20, 2016. With EPS (earnings per share) of $1.45, the company beat Wall Street analysts’ estimates of $1.35. This was mainly due to increased spending, as well as its new partnerships and initiatives.

AXP stock rose by 3% in after-market hours, reflecting a positive trend over the past few months. The company posted 1Q16 net income of $1.4 billion compared to $1.5 billion in 1Q15.

The first quarter of 2016 saw a consolidated provision for losses of $434 million compared to $420 million in 1Q15. The company’s total revenue, net of interest expense, rose by 2% to $8.1 billion compared to $8.0 billion in 1Q15.

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Sizable issuances

American Express, the world’s largest card issuer, is a global services company that provides payment, travel, and expense management solutions. Geared toward individuals as well as businesses, its primary offerings are credit and charge card products and travel services.

With a network of high-spending card members, American Express’s annual charge volume exceeded $1 trillion in 2015. In comparison, Visa’s (V) annual charge volume was $7.5 trillion, and Mastercard’s (MA) was $4.8 trillion in 2015.

American Express is the biggest player in the card market based on purchase volumes, followed by JPMorgan Chase (JPM). American Express and JPMorgan Chase together make up 1.7% of the iShares Core S&P 500 ETF (IVV).

In this series, we’ll take a look at American Express’s volumes, charges, issuances, balance sheet strength, dividends, and valuations.

Let’s start with its US business and how it has expanded on interest and spending.


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