American Express fundamental analysis.
American Expess fundamental analysis: Founded in 1850, American Express Company, headquartered in New York, is a versatile financial services provider known for its charge and credit payment card products and global travel-related services. Alongside its primary subsidiary, American Express Travel Related Services Company, Inc. (TRS), both entities are designated as bank holding companies under the Bank Holding Company Act of 1956. Additionally, American Express offers business travel-related services through its non-consolidated joint venture, American Express Global Business Travel (the GBT JV).
The company’s diverse array of products and services encompasses charge cards, credit cards, and various payment and financing products. Moreover, AE offers merchant acquisition and processing, servicing and settlement solutions, point-of-sale marketing, and information products for merchants. American Express also provides expense management products and services, as well as comprehensive travel-related services.
Company’s Reporting Segments.
- U.S. Consumer Services (USCS): Comprising 45% of the total segment revenue net of interest expenses in 2022, this unit issues a wide spectrum of proprietary consumer cards. USCS also offers travel and lifestyle services, along with banking and non-card financing products tailored for U.S. consumers.
- Commercial Services (CS): Representing 26% of the total, this division caters to U.S.-based corporate and small business clients. It provides a comprehensive range of proprietary cards, payment and expense management services, combined with banking and non-card financing products.
- International Card Services (ICS): Accounting for 17% of the total segment revenue, ICS issues a diverse range of proprietary consumer, small business, and corporate cards outside the United States. This segment serves international customers of American Express, manages specific international joint ventures, and handles loyalty coalition businesses.
- Global Merchant and Network Services (GMNS): This segment, contributing 12%, operates a global payments network for processing and settling card transactions. GMNS also focuses on merchant acquisition and offers multi-channel marketing programs, capabilities, services, and data analytics by leveraging the integrated network capabilities of the company.
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AMERICAN EXPRESS FUNDAMENTAL ANALYSIS: REASONS TO BUY.
Revenue Growth:
American Express’ fundamental analysis highlights a consistent uptrend in revenues. This growth is driven by a range of strategic initiatives. In 2022, revenues, net of interest expenses, surged by a remarkable 25% and this positive momentum has continued through the first half of the current year. Importantly, the macroeconomic environment is anticipated to sustain Card Member spending for the remainder of the year. This is strongly supported by the new growth strategy. The company’s management has set an ambitious target of achieving robust revenue growth, ranging from 15% to 17% in 2023. Looking ahead, American Express envisions long-term revenue growth exceeding an impressive 10%.
Acquisition of Kabbage:
American Express took a significant step in the small business banking sector through the acquisition of Kabbage, a prominent online lending platform. A substantial portion of AmEx’s customer base comprises small businesses, which were severely impacted by the pandemic. These strategic moves have significantly contributed to AmEx’s domestic market growth and diversification of revenue sources. Furthermore, American Express has forged strategic partnerships with industry leaders, including Delta, Hilton, and Amazon.
Enhancing Shareholder Value:
The company demonstrates robust cash generation capabilities, enabling it to pursue strategic business investments and implement prudent actions aimed at enhancing shareholder value. Notably, in the first quarter of 2023, American Express raised its quarterly dividend by a substantial 15% to 60 cents per share. With its solid capital position, the company returned a substantial $4.9 billion to its shareholders in 2022 and distributed a noteworthy $2.2 billion to shareholders in the first half of 2023.
Strong Return on Equity (ROE):
American Express’ impressive return on equity (ROE) significantly underscores its growth potential. The company’s ROE stands at an exceptional 29.3%, surpassing the industry average of 15.3%. This reflects the company’s highly effective use of shareholders’ funds to drive growth and returns. Over the past year, American Express shares have consistently outperformed the industry, further solidifying its favorable position.
Robust Financial Position:
As of the second quarter, the company held a substantial $3.4 billion in cash and cash equivalents, further supported by manageable short-term borrowings of $1.6 billion. American Express boasts significant cash-generating capabilities, reinforcing its financial stability. With a times interest earned ratio of 6.4X at the end of the second quarter, American Express clearly demonstrates its significant ability to comfortably cover interest payments, notably surpassing the industry average