American Express (AXP) is Seeing Tremendous Demand for Travel

Stock (Symbol)

American Express (AXP)

Stock Price

$156

Sector

Data is as of

Expected to Report

Company Description

American Express Company is a globally integrated payments company.

The Company provides its customers with access to products, insights, and experiences that builds business.

It operates under four segments: U.S. Consumer Services (USCS), Commercial Services (CS), International Card Services (ICS), and Global Merchant and Network Services (GMNS). USCS offers travel and lifestyle services as well as banking and non-card financing products. CS offers payment and expense management, banking and non-card financing products. CS also issues corporate cards and provides services to select global corporate clients. ICS also provides services to international customers, including travel and lifestyle services, and manages certain international joint ventures and its loyalty coalition businesses. GMNS provides multi-channel marketing programs and capabilities, services and data analytics. It provides credit and charge cards to consumers, small businesses, mid-sized companies and corporations.

Sharek’s Take

American Express is a globally integrated payments company in providing credit and charge cards to individuals and businesses with high credit scores. The company is both a a card issuer (like Chase and Citi) and a card network (like MasterCard and Visa). American Express’ integrated payments platform has direct relationships with Merchants and Card Members, creating a closed loop so Amex has direct access to information. The company can analyze info on spending to underwrite risk, reduce fraud and do targeted marketing. What makes American Express special is its Membership Rewards program, which include benefits such as airport lounge access, dining experiences, and other travel benefits. The company has been attracting younger, Millennial and Gen Z customers. During 2021, American Express introduced its first business checking account product and new digital capabilities.

Here’s a short history of American Express:

• 1850 – American Express was founded as an express mail, freight forwarding business in Buffalo, NY.
• 1891 – The company introduced the Travelers Cheque to help adventurous and entrepreneurial customers traveling abroad feel more secure with their money.
• 1895 – Opens its Paris office, its first office outside North America.
• 1958 – American Express introduced its first charge card in the U.S and Canada.
• 1991 – Launches Membership Rewards, the worlds largest card-based rewards program.
• 1992 – AXP spins off credit card processor First Data, which has since merged with Fiserv.

AXP engages in businesses comprising four operating segments:

• US Consumer Services (USCS):
  • This segment primarily issues proprietary consumer cards to US consumers and provides travel and lifestyle services.
  • Last qtr, segment’s revenue net of interest expense was up 25% from a year ago. Growth was driven by higher interest income, higher average loan volumes, and increase in Card Member spending.
• Commercial Services (CS):
  • This segment primarily issues proprietary cards and services to corporate and small business in the US and select global corporate clients. The services include payment and expense management and non-card financing solutions.
  • Last qtr, revenue net of interest expense up 15% from a year ago.
  • Growth was aided by increase in Card Member spending.
• International Card Services (ICS):
  • This segment primarily issues proprietary cards and travel and lifestyle services outside the US.
  • Last qtr, this segment’s revenue net of interest expense rose 22%.
  • Growth was driven by increase in Card Member spending and foreign exchange-related revenue.
• Global Merchant Network Services (GMNS):
  • This segment operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics.
  • Last qtr, revenue net of interest expense was up 23%.
  • Growth was driven by higher network volumes.

American Express is a reasonably safe stock that is part of the Dow Jones Industrial Average. This stock does have some credit risk, as the company holds the credit card loans, unlike Visa and MasterCard. There have been years during the past decade when profits haven’t hit All-Time highs. Thus, this stock doesn’t have great certainty as MasterCard and Visa possess. AXP spent $3.3 billion on stock buybacks in 2022, and paid $1.6 billion in dividends. The dividend has been raised or stayed the same every year since 2012. AXP has an Estimated Long-Term Growth Rate of 8% and a yield of 1.6%. I consider this a ten percent grower (Est.LTG + yield) long term, but revenue is growing faster than that now as American Express has good momentum. AXP will be added to the Conservative Portfolio. I strong travel trends and momentum from younger customers are positives. There is risk of a recession crimping profits. But AXP has more affluent clients that should be able to pay their bills.

One Year Chart

Qtrly profit growth has been poor recently, but management expects good profit growth in the coming years. Profits could climb 10% next quarter, but I would expect the company could miss estimates if they adjust for more credit losses.

Analysts have an Est. LTG of 8% on this stock. That’s below the 10% I like to see in my safe stocks.

Earnings Table

Revenue growth was driven by increased Card Member spending, which was led by Millenials and Gen Z, higher interest income from loans, and rapid growth in travel and entertainment spending, as well as strength in goods and services spending. Management said that more than 60% of new consumer accounts globally were from Millennial and Gen Z customers. They contributed the strongest growth in the consumer billed business.

Annual Profit Estimates are mixed this qtr. For 2023, management re-affirms revenue growth guidance of 15% to 17% and EPS of $11 to $11.40. Profits are expected to climb at double-digit rates the next few years (13%, 12% and 12%).

Qtrly profit Estimates are for 10%, 19%, 41%, and 17% growth the next 4 qtrs. Analysts estimate AXP’s revenue will grow 16% next quarter.

Fair Value

Actually, the stock was $156 when these charts and tables were done. AXP closed at $149 today.

Bottom Line

American Express (AXP) has had an erratic profit history. Also, the stock hasn’t been a steady grower the past decade. And 9% profit growth/stock growth during the last ten years is good but not great. 

Overall, business is great especially in travel. AXP is getting making more on interest with rates now high. There’s credit risk with this company, as a recession could cause write-offs to rise. But there’s so much momentum in travel and with young clientele that I think the stock is a good investment here. Even if it were to dip, I feel it would be temporary.

AXP will be added Conservative Growth Portfolio. The stock will rank 23rd in the Power Rankings.

Power Rankings

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Aggressive Growth Portfolio

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Conservative Growth Portfolio

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