American Express Provides Q1 Guidance Amid Coronavirus Scare

American Express Company AXP has provided an update on the impact of COVID-19 (or coronavirus) on its financial performance.

With strong performance in January and most of February, the company observed softness in spending volumes in the last few days of February. This weakness in business continued and became more poignant in March.

Accordingly, American Express now expects its first-quarter 2020 revenue growth to be in the range of 2% to 4% on an FX-adjusted basis, and adjusted earnings per share to be in the range of $1.90 to $2.10, excluding reserve builds in the quarter.

The payments industry has not been spared from the deadly coronavirus or COVID-19 effect. The rampant coronavirus spread has had a serious impact on the global stock market and is not fading away anytime soon.

The novel coronavirus has been officially declared a pandemic by the World Health Organization. It has claimed more than 6,000 lives worldwide, and has impacted corporate profit margins and global economic growth.

This coronavirus outbreak has caused bigger problem in the global economy due to demand contraction led by travel restrictions as well as supply disruptions.

The global pandemic has rocked the payments players with some having also lowered their guidance reeling under its severity. The coronavirus fear has hit the consumer spending hard due to lower travel frequency.

Almost all the top players in the industry are bearing the brunt of coronavirus-induced business loss.

Visa Inc. V, which has a solid international presence and a vast payment network, has announced that Coronavirus outbreak is likely to impact its cross-border e-commerce growth. The company said that if cross-border business continues to show weakness through the end of the quarter, year-over-year net revenue growth in the second quarter will be approximately 2.5-3.5% lower than its previous estimate provided in the first quarter earnings conference.  The company then estimated second-quarter net revenue growth to be in the low double digits, and modestly better than the first quarter (indicating revenue growth of 10% year over year).

Management at another leading company in the space, PayPal Holdings, Inc. PYPL, stated that its international cross-border e-commerce activity has been adversely impacted by COVID-19.  It expects a 1% dip in its first-quarter 2020 revenues. According to the company, although it is witnessing solid business traffic, it anticipates a downfall in e-commerce traffic.

Mastercard Incorporated MA, another leading player in the payment markets, estimated revenue growth for the first quarter to be 9-10% from the year-ago reported figure on constant currency (cc) basis (indicating a reduction of 200-300 basis points from the previous projection of growth in low double digits). If the impact is restricted to the first quarter, management expects net revenue growth for the current year to be at the lower end of the view in low-teens at cc, indicating a decline from the year-ago reported figure.

Year to date, shares of American Express have lost 30.5% compared with its  industry’s decline of 22.5%. Other players in the same space such as Mastercard, Visa and PayPal have lost 20.3%, 16% and 9.5%, respectively, over the same time frame.

We believe the recent coronavirus-led disruption to be a temporary affair and that the company’s brand name, strength and resiliency of its business model should help it tide over the current situation.
American Express carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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