Buffet Radar: Buy American Express (AXP)
The first thing to understand about American Express is that it is a closed-loop credit provider, which means it conducts both credit issuance and transaction processing on its network. Therefore, it does not issue cards or grant credit through external banks.
Since it is a bank and a payment processor, it makes money via interest on loans, transaction fees, and annual card fees. Unlike Visa and Mastercard, which are not lenders and only make money from transaction fees, this is different.
AXP Beats Earnings
$AXP announced plans to raise its dividend by 15% and provided 2023 guidance that exceeded Wall Street expectations. The credit card business provided EPS guidance for 2023 of $11.00-$11.40 versus a consensus of $10.45. It projects annual revenue growth of 15%–17%, which translates to $60.79–$61.85 billion. The estimated amount is $58.76B.
In addition to spending, American Express has seen a significant increase in its customer base, with millennials and Gen Z as the main drivers. For example, 60% of the 3.3 million new cards issued in the third quarter belonged to the younger population—the experiences, benefits, and services of using an American Express card appeal to younger generations.
Although a recession-threatening economy may not seem like the perfect setting for customer spending and acquisition, American Express's distinctive value proposition makes it a wise investment. It serves wealthy clients who a sluggish economy won't as negatively impact. It also strongly depends on how much money people and businesses spend on travel. It recently experienced its worst spell in decades but is now recovering and returning to its pre-pandemic levels.
Source: Yahoo Finance