American Express Co., the biggest credit-card issuer by purchases, may say second-quarter income almost tripled as card spending increased more than the company anticipated and fewer borrowers defaulted.
AmEx, which plans to report results after markets close today, may post profit of $945.8 million, compared with $337 million in the same period a year earlier, according to the average estimate of analysts in a Bloomberg survey.
Spending on cards issued by New York-based AmEx climbed about 15 percent in April and May, rebounding faster than Chief Executive Officer Kenneth I. Chenault expected, he said during a June 2 investor conference. Competitors including Bank of America Corp. reported fewer overdue loans and improved collections in the quarter.
“We could be in the early stages of a robust recovery in spending,” said Bruce Harting, an analyst with Barclays Plc, in a July 12 research note. He rates AmEx “overweight” and said the shares may reach $51 within a year.
AmEx, the top performer of 2009 in the Dow Jones Industrial Average, closed yesterday at $41.15. The shares gained 1.6 percent this year.
That’s better than San Francisco-based Visa Inc., the world’s biggest payments network, which dropped 17 percent as Congress approved caps on debit-card “swipe” fees charged to merchants. The measure, part of the financial overhaul bill signed into law yesterday by President Barack Obama, takes effect next year. MasterCard Inc., the No. 2 network, has fallen 21 percent this year.
AmEx is insulated from the caps backed by U.S. Senator Richard Durbin, the Illinois Democrat and majority whip, because the company doesn’t issue signature debit cards or process debit transactions.
“American Express is largely unscathed by Durbin,” Citigroup Inc. analyst Donald Fandetti said in a July 20 research note.”
Overdue payments, a gauge of future write-offs, fell to 2.7 percent in June from 2.9 percent in the previous month, according to a July 15 regulatory filing. Write-offs for loans deemed uncollectible dropped to 5.7 percent from 6.3 percent, the lowest of the six-biggest credit-card issuers. That improvement may allow AmEx to recoup some of the $5.31 billion it has set aside for future loan losses.
“American Express is considerably over-reserved, which gives it plenty of dry powder to invest to grow the top line and perhaps begin repurchasing shares,” Michael Taiano, an analyst with Sandler O’Neill & Partners, said in a July 15 research note. Taiano rates the stock “buy” and said the shares may reach $48 within a year.
The company likely will use the cash to increase spending on marketing and cardholder rewards, Buckingham Research Group analyst David Hochstim said in a July 15 note to clients.