On 28 August 2018, the American Express (NYSE:AXP) stock price touched its all-time high price of $107.43. This analysis is a summarization of our research and analysis based on the news for American Express, for the year 2018. This provided us the clarity and reasoning for possible continuation of higher momentum in the stock price.
American Express Financial Snapshot
- As we can clearly see from the financial highlights in the stock data, American Express has got Return of Equity of around 28.09% which is really an impressive number for equity investors of the Company.
- Beta is 1.18, which means it is ahead of the market by 18%.
- P/E values of the Company, Industry & sector is also comparable. The point to be noted about AXP is its market cap of $92.18B.
Let’s look into some rationale relevant news happened related to AXP price hike YTD 2018
1. July 19, 2018
- Loan growth continued.
- Increased spending lifted fee income.
- More write-offs happened. In prepared remarks on the conference call, management suggested that higher write-offs this quarter were partially related to loans that soured because of last year’s hurricanes.
- Provisions were as per expectations, says management.
- AXP introduced a new card in partnership with Wells Fargo. Inked a deal to issue credit card for small-business owners with Amazon.
2 . July 31, 2018
- According to the report, a salesperson allegedly would tell potential clients that AmEx would beat the price they were paying banks or other financial institutions to convert currency and send money overseas.
- The salespeople allegedly would not inform customers that the margin, a markup that AmEx tacks on to the base currency exchange rate, was subject to increase without notice, the report continued.
- Customers would have to compare the rate AmEx was offering to the market exchange rate at the time of the transaction to spot the markup.
3. August 1, 2018
- CFO seems to be pretty less confident over the stocks.
- The Management was to buy-back shares a few days before this news, as per reports. The rationale behind this move needs to be scrutinized.
4. August 3, 2018
- After a day, CEO following CFO’ steps of selling shares.
- We can clearly smell a rat.
- This might be a strategy to maintain their high ROE
5. August 23, 2018
- The financial performance of the business could be catalyzed by continued product differentiation. It has been able to appeal to a wide range of consumers through product innovation, with around half of customer acquisitions on its U.S. consumer platinum cards coming from millennials.
- Services such as rewards for its card members, access to exclusive airport lounges and credits to ride-sharing services are appealing to consumers across the globe. This is helping to boost demand for its fee-paying cards in particular, with 60% of its new card acquisitions being in this space.
- American Express is also seeking to differentiate its offering in terms of the technology it provides to customers.
- It is making significant investments in the digital space, seeking to develop artificial intelligence, machine learning and blockchain capabilities to improve customer service levels. These investments seem to be having a tangible impact. The company placed first in J.D. Power’s 2018 mobile app competitive survey. Among Millennials, in particular, an increased focus on technology could lead to rising customer numbers.
- Since it is clear that the huge loan book is the main driver of their revenue. This alone carries risk of increasing provision and write-offs. So a reduction in the net charge-off ratio which has been on the rise should be focused upon.
Understanding the American Express Business Model (Sources: Annual Report 2017 & Images from AmEx Investor day presentation )
Their “spend-centric” business model focuses on generating revenues primarily by driving spending on our cards and secondarily by finance charges and fees. Because of the revenues generated from having high-spending Card Members, they are able to invest in attractive rewards and other benefits for Card Members, as well as targeted marketing and other programs and investments for merchants. This creates incentives for Card Members to spend more on their cards and positively differentiates American Express cards. They believe their integrated network and spend-centric model gives them the ability to provide differentiated value to Card Members, merchants and our card-issuing partners.
Global Consumer Services
- They offer a wide range of charge cards and revolving credit cards to consumers in the United States and internationally through our U.S. Consumer Services (USCS) and International Consumer & Network Services (ICNS) segments.
- In addition to these proprietary cards, they partner with banks and other organizations to issue American Express-branded products. Moreover, they offer several services that complement their core business, including consumer travel services and deposit and non-card financing products such as installment lending
- Their charge cards are designed primarily as a method of payment with Card Members generally paying the full amount billed each month. Charges are approved based on a variety of factors, including a Card Member’s current spending patterns, payment history, credit record and financial resources. Revolving credit card products provide Card Members with the flexibility to pay their bill in full each month or carry a monthly balance on their cards to finance the purchase of goods or services.
Global Network Services (GNS)
- Global Network Services (GNS) business, establishes and maintains relationships with banks and other institutions around the world that issue cards and, in certain countries, acquire local merchants onto the American Express network
- The GNS business has established card-issuing and/or merchant-acquiring arrangements with banks and other institutions in approximately 130 countries and territories.
Global Commercial Services (GCS)
- They have a suite of business-to-business payment solutions to help companies manage their spending and realize other potential benefits, including cost savings, process control and efficiency, and improved cash flow management.
- They offer local currency corporate cards and other expense management products in approximately 95 countries and territories and have global U.S. dollar and euro corporate cards available in approximately 110 countries and territories.
- They also provide products and services, including charge cards, revolving credit cards and non-card payment and financing solutions, to small and midsized businesses in the United States and internationally.
Global Merchant Services (GMS)
- Global Merchant Services (GMS) business builds and maintains relationships with merchants, merchant acquirers, aggregators and processors, and processes card transactions and settles with merchants that choose to accept our cards for purchases.
- They sign merchants to accept their cards and provide fraud-prevention tools, marketing solutions, digital assets and other programs and services to merchants leveraging the capabilities provided by their integrated network.
Corporate & Other
- Corporate & Other consists of corporate functions and certain other businesses, including their prepaid services business that offers stored value/prepaid products, such as American Express Serve®, Bluebird®, the American Express® Gift Card and Travelers Cheques.
- In August 2017, they announced that a third party, InComm, will assume program management and issuer processing responsibilities for their prepaid reloadable and gift card products in the United States, subject to final agreement.
- They also expect that InComm will acquire the Serve technology platform and other assets related to the American Express prepaid reloadable and gift card products business. Their support functions, including servicing, credit, insurance and technology, are organized by process rather than business unit, which they believe serves to streamline costs, reduce duplication of work, better integrate skills and expertise and improve customer service
American Express & Blockchain
American Express is a member of Hyperledger Blockchain project. They have tapped with them for Rewards Program Revamp.
American Express clearly has a long-established brand and reputation, which are key assets to the company. Their years-long efforts to incorporate blockchain technology into their financial services company, shows that they are committed to innovation. We will continue our coverage of American Express (NYSE:AXP). Please leave your comments below on your thoughts of American Express as a company and a stock pick (NYSE:AXP).