The stock of American Express Co. AXP has struggled throughout 2015 due to a challenging economy, stiff competition and a stringent regulatory environment. It also touched a 52-week low price of $68.48 on Dec 11.
On the economic front, American Express has been bugged by a strong dollar. In the last reported third quarter, a stronger dollar affected the company’s EPS by approximately 4% to 5%. The currency also had a significant adverse impact on a number of revenue lines including discount revenue, net card fees and other commissions. The company also commented that dollar strength can impact its 2016 earnings. Also, a decline in gas price by 25% lowered the transaction size, which was down 3% in the third quarter.
American Express is facing trouble on the regulatory front as well. The company faced a ruling from the Department of Justice in a case that challenged its agreements with merchants, prohibiting them from steering customers to less costly forms of payment. American Express is appealing the decision, and the case is underway. If American Express loses the appeal, its payments’ market share could be damaged and its transaction fee could suffer.
On the competitive front, the company remains challenged by continued innovation within the payments’ industry. Alternative payment methods such as mobile technologies also pose threats to growth.
While shares of American Express have lost 25% year to date, shares of its peers MasterCard Incorporated MA, Visa Inc. V have gained 12% and 16%, respectively. While both these companies are also exposed to almost the same economic and regulatory factors faced by American Express, a large part of the suffering in its share price can be attributed to internal factors.
The company’s earnings and consequently its share price have been dragged down by increased spending on growth initiatives. Management is considering spending more across a range of business opportunities to best position itself for long-term growth, in view of the loss of its contract with retail prime Costco Wholesale Corp, due to expire on Mar 16, 2016. Though these growth initiatives might generate earnings growth down the line, the bottom line has suffered this year from increased expenses. Earnings have also been pressured by co-brand renewal cost (Starwood, Delta and others), a stress that is expected to be felt in 2016 too.
Owing to these headwinds, the company expects 2015 EPS to be flat with to modestly down from the prior year. To be more specific, the company projects full-year 2015 EPS between $5.20 and $5.35.
American Express carries a Zacks Rank #3 (Hold). A better-ranked stock is Euronet Worldwide, Inc. EEFT, sporting a Zacks Rank #1 (Strong Buy).
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