Amex Outlook Positive Despite Falling Short on Q4 2016

Amex Outlook Positive Despite Falling Short on Q4 2016
January 24, 2017

 
Last week, credit card issuer American Express Company (NYSE: AXP) reported a 4% y-o-y decline in the fiscal 2016 fourth-quarter revenues, compared with a similar quarter last year. However, on Monday, the stock closed at $75.95, which is just $2.05 away from the 12-month high of $78. The main reason for the bullishness in the share price is the optimistic fiscal 2017 earnings outlook issued by the management. Still, we believe that the rally will not prolong and a correction would set in soon due to the reasons mentioned below.

The New York-based financial institution reported fourth-quarter revenues of $8.022 billion, down from $8.391 billion in the corresponding period last year. For 4Q16, Amex recorded earnings of $825 million or $0.88 per share, compared with $899 million or $0.89 per share in 4Q15. Excluding re-structuring charges, the adjusted earnings were $0.91 per share for the quarter ended December 2016. The Wall Street analysts anticipated earnings of $0.98 per share on revenues of $7.95 billion.

Kenneth Chenault, CEO and chairman of American Express, stated that Amex anticipates fiscal 2017 earnings of between $5.60 and $5.80 per share. The management’s FY17 outlook is more optimistic than Wall Street analysts’ view of $5.61 per share. That aided the price to stay near the yearly high level. However, there are some concerns which we believe would trigger a short-term correction.

In the quarter ended December, the adjusted total provision for losses increased to $625 million, from $523 million in the fourth-quarter last year.

The y-o-y decline in annual revenue clearly indicates that the company continues to suffer from the loss of its 16-year exclusive relationship with Costco Wholesale Corp. In addition to the intense competition, the company is also facing headwinds from a decline in the corporate travel budgets. The strong US dollar is expected to have a negative impact on the top line of the company in the current quarter. Thus, based on the above arguments, we believe that the share price would decline in the week ahead.

The stock has started declining after facing heavy resistance at 76.70. The decline in momentum is also reflected by the descending stochastic oscillator. So, we can anticipate selling to continue until the stock reaches its next minor support at 74.40.

American Express - Technical Analysis - 24th January 2017

To gain from the probable decline, a binary trader can look at the possibility of investing in a low or below contract. A trader should consider purchasing a put option or its equivalent contract only when the stock of Amex trades near $76 in the equity market. The low or below contract should be valid for a period of one week.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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