Anticipated decline in market share turns AMEX bearish

Credit card company American Express Co. (NYSE: AXP) reported almost a flat fiscal 2016 second-quarter revenue, compared to the similar quarter last year.

The Q2 2016 earnings, however, topped the analysts’ estimates. The management had re-affirmed the fiscal 2016 earnings per share. Still, the stock remains bearish. Such a scenario is possible only when the market is not convinced about the business model of the company. Let us study the performance of the company in the recent quarter and the opinion of analysts to arrive at a trading decision. The share price of AMEX closed at $60.86 on Tuesday.

The New York based company reported fiscal 2016 second-quarter revenue of $8.24 billion, down 1% from $8.28 billion in the prior year’s similar quarter. For the quarter ended June 2016, the company reported net income of $2.015 billion or $2.10 per share, up 48% from $1.473 billion or $1.42 per share in the quarter ended June 2015.

American Express

The analysts surveyed by Thomson Reuters anticipated earnings of $1.95 per share on revenue of $8.40 billion for the second-quarter.

Bill Carcache, the analyst at Nomura, stated that the sale of Costco portfolio will hurt the top line of the company in the third-quarter. The analyst also anticipates a rise in the expenses. AMEX has lost market share for the past three years and analysts believe that it is not going to be different in 2016. In fact, market participants believe that the recent product launches by the competitors such as MasterCard would only accelerate the loss of market share by AMEX.

Many investors, according to Carcache, have expressed their disappointment over the high annual fee charged by the AMEX. Furthermore, the analyst believes that the low reward value products offered by the AMEX no longer match the present situation.

The CFO of AMEX, Jeffrey Campbell, stated that the earnings would decline in the second-half of 2016 due to an increase in the investment towards infrastructure and technology. The CFO, however, opined that the fiscal 2017 earnings per share outlook of $5.60 remain unchanged. Still, the analysts believe that in the short-term, the company would certainly trim its earnings growth outlook to a range of 10% to 12% from the current range of 12% to 15% growth. The credit rating agency Fitch has given a negative outlook for the company. In its report, the agency stated that the company may slash its earnings view owing to a slight decline in the market share. Based on the above discussed facts, we believe that AMEX would remain bearish in the short-term.

The price chart indicates strong resistance for the stock at 64. In the past one month, the stock continues to trade below the 50-day moving average of 64.05. The stochastic oscillator continues to move in the bearish zone. The support on the downside exists at 58. Furthermore, the analysts have given a short-term price target of 56.

So, considering the technical and fundamental aspects, a one touch put option is recommended for a binary options trader. With a contract expiry date in the second week of November and a target price of $58 or higher, the trader can stay confident of realizing a return of up to 90% of the invested amount.

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