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Cash In On American Express

Apr. 10, 2018 11:52 AM ETAmerican Express Company (AXP)
Chris Watt profile picture
Chris Watt


  • AXP has produced strong growth in its share price since 2016.
  • Efforts made to reduce its discount rate with retailers and grow its consumer base are noteworthy.
  • Large one-time tax payment disguises a company with impressive fundamentals.
  • Current stock price of $92.14.


American Express (NYSE:AXP) is a credit card company based in the US with the fourth largest number of cardholders in the world (58 Million). This stock pitch will argue that Amex is undervalued and therefore, recommends Amex as a buy recommendation.

The general narrative of how Amex fits into the market is as a premium brand that has been sluggish to adapt to innovations in the retail lending space. Other companies such as Square (SQ) have managed to reduce payment processing costs in exchange for daily inflows of data. Amex's system often requires extra fees, which led supermarket chain Costco (COST) to end their agreement with Amex to be the sole card payment processor in 2016. This decision massively depressed the stock price preventing the stock from rallying further.

Operations Led Growth

I believe the catalyst for the growth in this stock is an expansion of the consumer base it provides loans to, with loans revenue increasing by 14% in the last quarter and card member spending was up 11%. Amex also has agreed to cut its discount rate that it charges retailers to 2.37% from 2.42%, learning a lesson from the Costco incident. The board looks to grow consumer base over margins which will increase net income in the future.

In addition, the company may be able to increase long-run operating revenue by expanding OptBlue. OptBlue is a program pursued by Amex to increase the acceptance of Amex credit cards in small businesses. It might decrease margins in the short run due to the cost of additional free advertising and promotions for small shop owner. However, the growth in Amex's consumer base should provide strong revenue growth in the future.

Finally, the reduction in corporate tax rate will increase earnings in the future, leaving more free cash flow to be

This article was written by

Chris Watt profile picture
I am student enrolled at Imperial College London studying a masters in Finance. I have been a member of the Oil and Gas Mutual fund at the University of Exeter and have always passionate about investing. I want to provide long/short equity recommendations as well as updates on equities through fundamental and technical analysis.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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