American Express Company (NYSE: AXP) stock lost over 3.2% in the pre-market session on Jan 19th, 2018 post their fourth quarter of 2017 update.
The group is expanding agreements with two important cobrand partners Hilton and Marriott for growth in over the next several years. The purchase of the current Citi/Hilton loan portfolio in the first quarter is expected to lead to a little less than 100 basis points of revenue growth for the year. Moreover, the margins would be lower on these partnerships, starting in January. The group forecasts the overall impact of these renewals to cut 2018 pretax earnings by more than $200 million against 2017. Lending write-off rates and delinquencies would rise even though they are below the industry average. For the fourth quarter of 2017, their Net income and EPS were hurt by the passage of the Tax Act. The Tax Act impact in the quarter was $2.6 billion, which has two components. AXP recognized over $2 billion of taxes on deemed repatriations of certain overseas earnings; and second, they recognized over $600 million charge related to the remeasurement of their U.S. net deferred tax assets to the lower rate of 21%. This $2.6 billion is slightly more than expected.
On the other hand, the group is aiming a better loan growth which would exceed the industry standards as they continue to focus to enhance the share of lending, particularly with existing customers. Net interest yield started to stabilize which would contribute to growth against earlier year. These dynamics together should again drive strong growth in net interest income as well as growth in provision for loss similar to the growth rate in 2017.
Adjusted for the impact of the Tax Act, the group generated $1.58 in the fourth quarter of 2017 and $5.87 for the full year of 2017, which is near higher end of the guidance. In fact, billings and revenue growth reached multiyear highs in the fourth quarter of 2017. AXP stock delivered over 30.3% in the last one year (as of Jan 18th, 2018; Source: Google finance) placing them at a higher P/E of 19.27x.