American Express Company (AXP)

Since spinning off its medicore finacial advisory business, Amex may have become the most underappreciated-in-plain-sight great business on the market. American Express has been widening the per card spending gap over competitors Mastercard and Visa for a decade, and it now has a 4X advantage cemented by a dominant brand, an self-reinforcing rewards program, and dominant customer information thanks to its unique closed loop network. This has allowed it to charge high discount rates to merchants than its monopoly competitors, a feat seen almost nowhere else in capitalism. Spending on Amex cards has been growing at about 15%, with the recent added benefit of new third party bank issued Amex cards on the heels of a favorable Supreme Court decision banning exclusivity. This growth has come at enormously high returns, with 30%+ returns on incremental equity, leaving significant free cash flow availavable for stock repurchase. Although credit is abnormally benign and should be normalized, 16X NTM earnings is very cheap for a well run, large moat, high return business with a very long tailed growth opportunity.

It's consolidating. Morningstar 5 star pick. AMEX's card holders spent over $11k, on average, per card, in 2006. That's 5 times the national average, and those high numbers allows AMEX to charge merchants a higher per transaction fee. AMEX's CEO knows that AMEX's reputation as a higher dollar card is the key to their continued revenue growth, especially in a highly saturated credit card market, and he has a "laser like focus" (as per Morningstar) on keeping things that way. Morningstar gives AMEX a beaming analysis, and rate AMEX's fair value at $70.00. Furthermore, AMEX has a "wide moat," which means it is positioned to weather an economic slowdown, such as the one we are now seeing signs of. Buy AMEX and hold for 20 years.

A very excellent business that doesn't require much capital and throws off loads of cash. Management uses this cash to buy back shares and pay an increasingly fat dividend. Thanks to an excellent rewards program, AmEx users spend more money than Visa, MC, or Discover users. This lets AmEx charge a higher transaction fee to merchants. Also, AmEx uses its own network to process these transactions so they make the money coming and going. Credit woes have the stock depressed currently. Their PE is a bit high for the industry but it always has been. Mr. Market just thinks more of AmEx than its competitors. So any slip up by AmEx in terms of its image or decision making abilities could hurt the stock price. Management-A Fundamentals-A MOAT-B Growth Opportunities-B Price-A

The company announced last week that it will buy back more than 15% of its shares outstanding. This is one of the largest stock buybacks in the history of the financial sector. Sounds bullish to me.

The Sub-Prime Mortgage Problem will Transfer Over to Consumer Credit Card Company Write-Offs Over the Next 1 to 2 Years.

no one left home without it. "they have the cream of the crop customer base" - Warren Buffett.

Warren Buffett has held American Express stock for years and years. Davis NY A (NYVTX) and Selected American (SLASX), both run by Christopher Davis, have about 4.5% of each fund's asset's in AXP stock. Neither of these guys are idiots.

Amex's clients are richer than Visa or Mastercard, and they spend more. This allows Amex to charge more per transaction (which is why a lot of smaller merchants hate Amex and won't accept it). Amex also uses its own network to process each transaction, and it also issues its own cards. Controlling the whole loop of the credit card transaction allows them to earn interest on the cash they hold before paying merchants, and it gives them access to their customers' spending habits, which they use to target their products to merchants. Each individual transaction is more profitable for Amex than for Visa or Mastercard.

Amex has displayed very high returns on capital, and they should be able to sustain this for some years (although likely not forever). This is especially true since they spun off Ameriprise (Ameriprise's service, by the way, did not impress me very much - their agent turnover is high and the guy who I was consulting with has left the firm.) Its recent partnerships with MBNA, Citi, and ICBC will (hopefully) boost its effective customer base with only a small marginal cost. I think the stock is attractively valued right now, although I don't think it is going to grow as fast as Mastercard.

American Express's third-quarter earnings from continuing operations fell to $861 million from $1.1 billion in the same quarter last year (Q3). Diluted earnings per share from continuing operations fell to 74 cents from 94 cents in the same quarter last year. Analysts had on average expected 59 cents a share before items, according to Reuters Estimates. Third-quarter net income, which includes results from discontinued operations, fell 24 percent to $815 million.
Although these figures beat estimates, so the stock slided up slightly this week. But now the really bad: AXP is stashing large amounts of cash to make up for bad loans. Loan delinquencies have increased 51% this year, which is a terrible sign. In order to try to minimize their exposure they are cutting and reducing credit lines in order to be safe - good for the company in the longterm, bad for investors in the short term... American Express' total global outstanding loans fell 9 percent from the same quarter last year to $45.8 billion. Thats alot of potential profit down the drain, and they will continue this trend in order to remain safe. AXP will get through the credit crisis, but expect a good hailstorm on it's stock price in the coming months.

American Express began dumping their elite charge-card niche in the late 1990s. They've since been quite successful in launcing straight credit cards such as Blue and its clones. They also worked very hard cobranding credit cards with the likes of Delta Airlines, Hilton Hotels, Costco, Safeway, and several second rate sports teams. If you think their cardmember fees put them in a seperate class then you haven't looked hard enough at their exposure. Former CEO Harvey Golub worked hard to maintain brand and customer service. Current CEO Ken Chenault cut all that and works hard to maintain his 92 million dollar golden parachute: one of the largest in the US.

growing card business + owning the network + dividends makes this stock a good long term play

American Express is a leading global provider of payment and travel services to consumers, small businesses and large corporations. Its recent image is of a pure credit and charge card company concentrating more on core payments and travel services with the spin off of its financial advisory services. Moreover it has also helped it increase margins and its return of equity at 35%, dwarfs the results posted by its competitors.

The key differentiator of American Express has been its “spend-centric” model whereby strategic focus is on a superior customer base, which by their very nature spends more money with plastic cards. This makes it superior to the traditional “lend centric” model that depends on account receivable growth resulting in American Express charge a premium arising out of spending volumes. Flat discount rate of 2.55% reflect its ability to face pricing pressure from merchants

The recent quarter saw revenues grow by 13% driven by record card member spending during the holiday shopping season and continued growth in loan portfolio. The year 2006 had about $6.5 billion in investment spending owing to marketing, promotion, rewards and card member services. Though there has been an increase in reward costs within the card industry the company looks at it as a marketing tool to drive card member behavior. Endorsing the same, 80% of the U.S card members form part of some reward cards program driving 90% of the spending. Moreover, rewards programs along with co-branding have helped to drive better credit quality and low attrition levels. The credit quality remains under control supported by new legislations for bankruptcy and good employment conditions.

The company sees huge growth prospects in the small business market respecting 50% of its business. They represent about $2 trillion spending in the economy and have current penetration levels of less than 15%. Another bright spot is the global middle market business represented by companies that have more than 100 employees and revenues ranging between $1 million to $1 billion. Partnerships signed with major U.S bank and projections of strong U.S consumer travel sales would be the future growth driver and place the company in an advantageous position.

credit card is still used heavily by buisness travelers and has a lower default rate then the others. I think this stock is definitely undervalued compared to it's peers which seem to get a higher multiple and pricing.

Membership does have it privileges. This financial services firm is under appreciated. It caters to customers that have the resources and want the added benefits and are willing to pay for it.

Amex has a fabulous brand, but are struggling under the pressure of being a global financial services company and the differences of opinion and requirements of the different regions in which they operate. Their US region is fine, Canada is a mess and will be eating up a lot of profits for technology changes, and the European market is so fragmented that AMEX doesn't know which areas deserves or needs their attention most.

morningstar rec,

trend away from cash and checks to credit and debit cards am ex is the card for the mass affluent, who don't default, and spend much more.

"Rapid growth of lending balances over recent years" in regions of the U.S. with the worst real estate declines caused greater-than-expected losses, Scott Valentin, analyst at Friedman Billings Ramsey & Co., said in a research note today. "At no point in history have consumers incurred as much debt relative to wealth." He rates American Express "underperform."

Bloomberg is reporting American Express Falls Most Since 9/11 on Net Decline.

debt levels are a little rich for my blood ,but all other financials look nice. with emerging nations expanding and their purchasing power grwing, we can expect a growing demand for credit card use, and i feel american express is well positioned to benifit greatly from this demand.

Model is broken for an economy no longer over-spending on discretionary items. Lower salaries and higher taxes for top 5% of country will impact AXP customer more than any. Mgmt is also unable to deliver anything truly innovative in the market. Only hope is they get bought by JPMChase, Citi or WFC.

My gut feel is American Express is not out of the woods yet and will see an increase in bad debts. This will rattle the markets, the shares will fall and produce an excellent buying opportunity, but not today.