Bill Cara

American Express (AXP) Quarterly Report for Maverick Investors

November 9, 2023,   $152.37

Business Overview:

  • Founded in 1850, American Express Co. is a financial services corporation that provides charge and credit card products and travel-related services worldwide. The company operates through the Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services.

Maverick Guidance:

  • Short-term stock buy/sell recommendation: SELL after the recent bounce
  • Long-term stock recommendation: AVOID UNTIL AXP DROPS TO ACCUMULATION ZONE
  • 10-YEAR Average Annual Return = +8.08% to November 8, 2023 (3RD Quartile)
  • My Oct 22 Maverick Guidance worked out: “Wall Street is presently overly negative, promoting the impact its doom and gloom economic forecast will have on business and consumer spending and card use. This is a time for Mavericks to buy on spike bottoms.” But this is a time to avoid further purchases until AXP hits LT ACCUMULATION ZONE.
  • Nov 9 Maverick Guidance is to AVOID. Economic contraction is a serious concern.

Consideration for Maverick Portfolio:

  • Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
  • Too many internal weaknesses and external threats and a weak 10-year total return performance (i.e., Insufficient growth) keep AXP from being an appropriate MODERATE or AGGRESSIVE GROWTH candidate, regardless of AXP being a Warren Buffett favorite.

Market Guidance:

  • Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Moderate Buy.
  • 15 Wall Street analysts have offered 12-month price targets for AXP in the last 3 months. There are 8 Buy, 7 Hold, and zero Sell. (from TipRanks)
  • Based on 12 Wall Street analysts offering 12-month price targets for American Express in the last 3 months. The average price target is $176.00, with a high forecast of $201.00 and a low forecast of $148.00. The average price target represents a 15.5% change from the last price of $152.37. (from TipRanks)
  • Dividend Yield: $0.60 per share paid quarterly to yield 1.52%. Dividend growth for over 15 years. (from TipRanks)
  • Technical Analysis:
  • Investing.com =  Daily: BUY       Weekly: SELL

  • TipRanks.com = Daily: BUY       Weekly: NEUTRAL

Value Line Guidance: (all data from VL) (Nov. 3 Report)

  • Company Financial Strength Rating:  A++

Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst

  • Share Price Safety:             2 of 5
  • Market Timing:                   1 of 5
  • Technical Rank:                  3 of 5
  • Beta: 35
  • Stock’s Price Stability:                 60/100
  • Price Growth Persistence:          60/100
  • Earnings Predictability:              55/100
  • Projected Average Annual PE:  16
  • Average Annual Revenue Growth in the past 5 years:       10.0%
  • Average Annual Revenue Growth for the next 5 years:      12.5%
  • Average Annual Earnings Growth in the past 5 years:         7.0%
  • Average Annual Earnings Growth for the next 5 years:       8.5%
  • Average Annual Dividend Growth in the past 5 years:         8.5%
  • Average Annual Dividend Growth for the next 5 years:      11.0%
  • Projected Average Annual Dividend Yield in 3 to 5 years:   1.6%

American Express Company Q3 September 2023 Financial Highlights (Reported Oct. 20)

  • A sixth consecutive quarter of record revenue, up +13% from the year earlier to $15.4 Billion.
  • Record earnings per share, increasing by + 34% from a year earlier.
  • Net income of $2.5 billion, or $3.30 per share, compared to $1.9 billion, or $2.47 per share, a year ago.
  • Strong Card Member spending, up 7% on an FX-adjusted basis.
  • Momentum in Travel and Entertainment spending, up 13% on an FX-adjusted basis.
  • Millennial and Gen Z consumers are driving growth, with spending up 18% in the U.S. from a year earlier.
  • Third-quarter consolidated total revenues net of interest expense at $15.4 billion, up 13% from a year ago.
  • Strong credit metrics, with net write-off and delinquency rates below pre-pandemic levels.
  • Consolidated provisions for credit losses at $1.2 billion, up from $778 million a year ago.
  • Consolidated expenses at $11.0 billion, up 7% from a year ago, primarily due to higher customer engagement costs.
  • Consolidated effective tax rate at 20.9%, down from 23.6% a year ago.
  • Segment-wise pretax income for U.S. Consumer Services, Commercial Services, International Card Services, and Global Merchant and Network Services.
  • Corporate and Other reported a third-quarter pretax loss of $709 million.

Q2 June 2023 Quarter:

  • Earnings per share climbed 12.5% to $2.89, reflecting a 12.4% revenue increase from strong card member spending levels.
  • Millennial and Gen Z consumers remain the fastest-growing customer group.
  • Provision for credit losses almost tripled due to rising net write-offs.
  • Cash and equivalents stood at approximately $43.0 billion, while the common equity tier 1 capital ratio was 10.6%.
  • Quarterly distribution was raised 15.4% to $0.60 a share.
  • Stock buybacks of 20 million AXP shares for $3.3 billion and $1.6 billion in common stock dividends were executed in 2022.

Q1 March 2023 Quarter:

  • Revenues rose sharply due to strong card member spending levels.
  • Increased expenses and provision for credit losses were noted.
  • Earnings per share were expected to recover by 4% for the year.
  • The company introduced American Express Business Blueprint for small firms, focusing on digital solutions and acquisitions.
  • Quarterly distribution was increased by 15.4% to $0.60 a share.

Q4 December 2022 Quarter:

  • Limited progress on the earnings front was observed despite a significant revenue increase.
  • Provision for credit losses and total expenses saw notable upticks.
  • Plans to acquire Nipendo, a company enabling B2B payment automation, were disclosed.
  • Capital gains potential was noted, but long-term upside possibilities were below the Value Line median.

Financial Performance

  • 10-year Average Annual Total Return: +8.08% (through Nov.8, 2023) (Dow 30 3rd quartile).
  • EPS:
    • 2020: $3.77
    • 2021: $10.02
    • 2022: $9.85
    • 2023: e$10.45 > e$11.75          (latest Value Line Quarterly Report)
    • 2024: e$10.95 > e$11.00         (latest Value Line Quarterly Report)
  • Current PE:      14.3   (FinViz)
  • Forward PE:     12.4   (FinViz)
  • PEG Ratio:       0.96   (FinViz)
  • Beta:                  1.20   (FinViz)

SWOT Analysis:

Internal Strength/Weakness

Strengths:

  • Market Position: Global market leader and good market hold.
  • Financial Strength: Strong free cash flows.
  • Brand Portfolio: Investment in a strong brand portfolio.
  • Operational Efficiency and Scalability: Leader in automation.
  • Customer Relations: High customer satisfaction and loyalty.
  • Supply Chain: Reliable suppliers and no supply bottlenecks.
  • Dealer Network: Dealer culture promoting product benefits and training.
  • Distribution Network: Reliable global distribution network.

Weaknesses:

  • AmEx charges higher fees to merchants: This policy limits card acceptance among smaller businesses.
  • Cardholders view Amex’s premium and annual fees as too steep.
  • Customer relationships must improve: This is a difficult qualitative factor and a long-term challenge to overcome.
  • The Consumer Financial Services industry is growing faster than the company.
  • AmEx has to carefully analyze trends and determine what it needs to do to drive future growth.
  • Difficulty in countering challenges from new market entrants: The business model can be easily imitated.
  • AmEx must build a platform model that integrates suppliers, vendors, and end users.
  • Limited success outside the core business: The AmEx product line concentrates on one or two main goods.
  • Niche markets and local monopolies to exploit are fast disappearing: The customer network is proving less and less effective.
  • Traveler’s check business is drastically declining: It has to be revitalized.
  • Debit card Shortage:  It hinders potential market expansion.
  • High attrition rate and increased spending on employee training: Employee turnover leads to higher salaries to maintain talent.
  • Declining per unit revenue: Ineffective product demand forecasting leads to missed opportunities and puts downward pressure on profitability.

External Opportunities/Threats

Opportunities:

  • International Expansion: Exploring opportunities in global markets.
  • New Environmental Policies: Leveraging technology for gaining market share in new product categories.
  • Loosening Regulations: Capitalizing on regulatory changes.
  • Government Green Drive: Procuring contracts for green products from state and federal governments.
  • New Taxation Policy: Identifying ways to increase profitability amidst policy changes.
  • Core Competencies Expansion: Diversifying into related product segments.
  • New Trends in Consumer Behavior: Identifying and entering markets aligned with changing behaviors.
  • Diversification and New Revenue Streams: Exploring opportunities in new product categories.
  • Stable Free Cash Flow: Investing in adjacent product segments and new technologies.
  • Lower Inflation Rate Benefits: Leveraging rates for customer benefit.
  • New Online Customer Channels: Utilizing online platforms and data analytics for better service.
  • Fragmented Financial Market Opportunities: Identifying prospects in a diverse market.
  • Capitalizing on Reduced Competition: Gaining market share in less competitive environments.
  • Synergies from Acquisitions: Leveraging advantages from strategic acquisitions.
  • Adoption of New Financial Technologies: Exploring tech-driven revenue opportunities.
  • Streamlining Operations: Divesting non-core assets to optimize operations.

Threats:

  • Varied Liability Laws: Exposed to liability claims due to differing laws in various countries.
  • Counterfeit Products: Risk of imitation and low-quality products, particularly in emerging and low-income markets.
  • Shortage of Skilled Workforce: Lack of skilled workers in certain global markets impacting steady profit growth.
  • Intense Competition: Stable profitability attracts more players, leading to downward pressure on sales and profitability.
  • Currency Fluctuations: Exposure to currency fluctuations, particularly in politically volatile markets.
  • Increasing Isolationism: Rising isolationism in the American economy potentially impacts international sales.
  • Irregular Innovation Supply: Unpredictable supply of innovative products leading to sales fluctuations.
  • The shift in Consumer Behavior: Changing consumer preference toward online channels threatens the existing physical infrastructure-driven supply chain model.

FinViz Snapshot: https://finviz.com/screener.ashx?v=341&f=idx_dji&t=AXP&o=roi

10-Year Historical Price Chart: (from StockCharts.com)

 

 Point & Figure Chart: (from StockCharts.com)

https://stockcharts.com/freecharts/pnf.php?c=AXP,PWTADANRNO[PA][D][F1!3!!!2!20]

 

 Why participate as a Maverick Investor?

Why participate as a Maverick Investor?

Bill Cara has written “The Maverick Investor’s Handbook”  for novices, students, career-changers, and retirees who seek to build a lifelong securities portfolio. You are encouraged to break away from ubiquitous, overwhelming, and often misleading Wall Street advice and become a maverick investor, confident in a simple yet effective strategy that outperforms Wall Street.

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