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Consumer sentiment has been waning in the past few months, due to various factors, including a weakening job market, rising inflation, and geopolitical uncertainty.

But you wouldn’t know it by looking at American Express’s (NYSE: AXP) third quarter earnings. The credit card and payment provider posted record revenue and smashed earnings estimates.

• Revenue: $18.4 billion, a record, up 11% year-over-year. This crushed estimates of $18.0 billion.
• Net income: $2.9 billion, up 16% year-over-year.
• Earnings: $4.14 per share, up 19% year-over-year and better than estimates of $3.99 per share.

Network volumes, the total amount of purchases made on American Express cards, rose 9% to $479 billion in Q3. The number of cards in force, or basically active cards, rose 4%, while the average fee per card increased 13% to $119.

The higher fees per card helped drive fee revenue 18% higher to $2.5 billion. Revenue from services fees also rose 18%. In addition, discount revenue, which comes from merchant swipe fees, increased 7% to $9.4 billion.

The other major sources of revenue for American Express is interest income. Unlike Visa and Mastercard, American Express provides the loans to its customers, so it generates interest on those loans.

• Interest income: $6.6 billion in revenue, up 8% year-over-year.
• Interest expense: $2.1 billion, down 1%.
• Net interest income: $4.5 billion, 12% year-over-year.

Stock jumps 4.5%

What sets American Express apart from the two major credit card companies is the interest income it generates, in addition to swipe fees. While this can be a benefit when times are good, it does introduce an element of credit risk that the other card companies don’t have.

In the third quarter, that risk was minimized, as American Express’s provisions for credit losses were 5% lower at $1.29 billion. This is money that the company set aside to cover bad debt from defaults. The fact that it was lower that the credit quality looks fairly strong.

Another differentiator for American Express is that it attracts a wealthier clientele and more business accounts than the others and is widely used for travel. That helps it perform better during uncertain or rocky economic times, as wealthier customers are less impacted by economic downturns.

American Express stock jumped some 4.5% on Friday to $338 per share. The surge was also due to AmEx raising the lower end of its guidance for the full fiscal year. It boosted its revenue growth expectations to 9% to 10%, up from 8% to 10% previously. EPS guidance was raised to $15.20 to $15.50, up from $15.00 to $15.50 per share.

Most analysts consider American Express stock a buy with a price target of $355 per share, which would be about 5% growth. But BTIG came out with a note on Friday reiterating a sell rating on the stock as its guidance suggests that its Q4 earnings will be below the midpoint of its expectations.

That’s worth watching, but longer term, American Express has been a great stock for a long time and it remains reasonably valued right now.

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