After losing a lucrative agreement to issue branded cards for Costco in February and the demise of its partnership with JetBlue, Chenault has been developing new revenue sources, most recently with a deal enabling wholesale retailer Sam's Club to accept American Express cards.
"Our focus continues to be on the earnings outlook per year and for the long-term, instead of the performance each quarter," Chenault said of the earnings miss on Wednesday's earnings call. "Throughout this year we said our EPS would be flat to modestly down... We estimate $5.20-$5.35 for the year earnings per share." The company had previously projected earnings of $5.28 per share.
The company reported earnings of $1.24 a share, trailing the average estimate of $1.31 from analysts in a Bloomberg survey. Net revenue dropped 1% to $8.19 billion, trailing market projections of $8.31 billion. While transactions in general increased on the quarter, up 7% in the U.S. from last year, average U.S. transaction sizes decreased.
"We continued to move forward with initiatives to build our business for the years ahead," Chenault said in a statement. "With our Costco relationship set to end in the U.S. next year, we're investing substantially more in marketing, incentives and technology to attract a range of new card members."
In addition to the Sam's Club deal, Chenault has renewed many of the company's branded credit card alliances. Those agreements -- with British Airways, Delta and Cathay Pacific airlines and Starwood hotels -- all bode well for the company, said Christopher Donat, an analyst with Sandler O'Neill.
While losing Costco, the third-largest U.S. retailer, was a "big hit," American Express's underlying value remains sound, he said.
"We see many opportunities to grow our business and grow our cardholder base," Chenault said on Wednesday's earnings call.
Looking forward, "a key theme for both card issuers and auto lenders will be the continuation of favorable credit quality trends," Sandler O'Neill said in a recent report. Data for August showed early-stage delinquencies "near record lows for major issuers," according to the report.
Sandler O'Neill maintains a "buy" rating on American Express, with a $90 price target.
"Costco is a hole that they have to plug or work through, and next year will be a transitional one," Sanjay Sakhrani, an analyst with Keefe Bruyette & Woods, said in a phone interview before the earnings report. Still, he said, "the stock is quite attractive because you are getting a very good value at a good price."
Keefe Bruyette maintains an "outperform" rating on AmEx, the equivalent of a buy, and a $95 price target. The shares have fallen 18% this year to $76.58
American Express has a strong correlation with the health of the economy, so analysts will also be looking for signs of an economic rebound in China, which would accelerate loan growth.
"Although it has been a challenging environment for the cards and payments space ... we continue to believe that the operating trends seen across our coverage remains constructive based on the solid credit quality, robust loan growth, and strong volume trends seen during the quarter," Keefe Bruyette said in the report.