While earnings season has come in strong, a few misses have occurred. Within that group of stocks, some companies are likely to continue to struggle. Other firms, however, are demonstrating short-term issues that are likely to lead to higher prices in time.
One such name in the latter category is American Express (AXP). Shares dropped on Friday as the company reported solid earnings with better-than-expected profits. The issue? The company’s revenues were a little on the low side.
Overall, the company reported $9.1 billion in revenue versus $9.2 billion in expectations. And revenue is down 12 percent compared to the same quarter a year ago.
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Even with the drop, shares of AmEx are up nearly 77 percent over the past year, and the company managed to keep a 10 percent profit margin despite its slight drop in revenue and earnings in the past year. Looking ahead to a fully reopened economy, the company is likely to benefit from higher levels of consumer spending, particularly on items like vacation travel.
Action to take: Investors may like shares here. The company pays a 1.2 percent dividend yield here. While not huge, the company does tend to grow it over time.
Traders may want to bet on a strong rebound in the second half of the year. Shares have been rangebound in recent weeks, and the earnings drop may set up for a bigger move higher. The January 2022 $165 calls, with a bid/ask spread near $4.90, offer high-double to low-triple digit return potential should the company post stronger numbers in the next few quarters.
Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.