American Express (AXP) Stock Drops As Q3 Earnings Strength Meets Cost Questions

The market just marked American Express down almost 4% to about US$313, even as the company delivered one of its cleanest profit stories in recent quarters. Q3 2026 basic earnings per share landed at US$5.52 on US$19.8b of revenue, with net income of US$3.7b, and those figures sit well above where the business was a year ago. Traders are leaning into short term worry, while the financials point instead to a franchise flexing pricing power through card fees and premium spending. This sets up a sharp clash between sentiment and fundamentals.

Impressed by American Express turning clean profits on US$19.8b of revenue but uneasy about buying into a sharp 4% pullback on a single quarter of sentiment? Compare this setup with a curated group of card and payments peers that pair resilient earnings power with balance sheet strength in our list of solid balance sheet and fundamentals stocks (25 results).

Q3 2026 Earnings Summary

• Total Revenue (Q3 2026 vs. Q3 2025): US$19,753m vs. US$17,139m (up about 15%)
• Net Income, excluding extra items (Q3 2026 vs. Q3 2025): US$3,712m vs. US$2,868m (up about 29%)
• Basic EPS (Q3 2026 vs. Q3 2025): US$5.52 vs. US$4.14 (up about 33%)
• Net Interest Margin, trailing 12 months to Q3 2026 vs. trailing 12 months to Q4 2025: not disclosed vs. 8.4% (comparison not available due to the missing latest figure)

Earnings tell you how American Express is performing this quarter, but the cash coursing through the business is what valuation focused investors tend to watch most closely.

On American Express' cash flows alone, the stock could be a notable 25% undervalued.

American Express Spend Efficiency Thesis Meets Real Proof Points

American Express bulls argue that the premium flywheel only works if heavy customer related spend reliably turns into richer economics rather than margin drift.

"A key factor is that American Express continues to convert heavy spending on rewards, customer acquisition and technology into revenue growth and high returns on equity, without credit losses or operating deleveraging eroding that profile."

Q3 provides evidence for that claim. Revenue grew 9% while management reaffirmed about 10% full year top line growth and lifted EPS guidance. Net card fees rose faster than total revenue and ROE sat near 35%. Credit metrics stayed tight, and a 5% headcount cut plus AI spend reallocation targets future operating leverage rather than backing away from investment.

One Narrative has put a figure on that disagreement. → See the Narrative with its higher Fair Value, assumptions and all.

American Express Bears Still Waiting For Pricing Crack

Bears argue American Express is overpaying for premium perks without enough pricing power to keep earnings healthy.

"Variable customer engagement expenses are now expected to be in the range of 44% to 45% of revenue in 2026 on an expense base of about US$35b. If premium membership investments in lounges, experiences and card benefits do not translate into commensurate pricing power or volume, net margins and EPS could face more sustained pressure than current models assume."

This quarter did not deliver that stress point. Net card fees were the fastest growing revenue line and EPS guidance moved higher. A 5% headcount cut and AI reallocation show management acting early on cost pressure rather than reacting to a squeeze already visible in the margin line.

Hunt For Mispriced Earnings Power

American Express just reported clean numbers that contrasted with a rapid sentiment shift in the market. The real opportunity may be in studying companies where earnings power and expectations do not appear fully aligned in current prices.

• Company 1 - 28% below our estimate - convert rising grid modernization and defense orders into higher value testing and diagnostic service contracts.
• Company 2 - 40% below our estimate - use policy supported trade in programs and refurbishment partnerships to pull more used devices onto its recommerce platform.
• Company 3 - 42% below our estimate - expand protective film capacity so automakers and installers can shift recurring orders into higher margin long term supply arrangements.

Those are three of them. See every one of the 27 undervalued companies on it →

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